The Monetary Policy Committee (MPC) of the Bank of Ghana has waded into the public debate of whether the country’s economic managers should pursue the path of economic growth or continue with its current inflation targeting regime.

N its 40th session to review the health of the economy, the Central Bank Governor, Mr Kwesi Amissah-Arthur, said the MPC has noted the public debate about the trade-off between inflation and growth, the pace of the disinflation process and its implications for growth”.

At a news conference in Accra to announce the cut in the Central Bank’s Policy Rate by 150 basis points from 15 per cent to 1 3.5 per cent, Governor Amissah Arthur said the benefits from the current disinflation outweighed the short term cost to growth.

“In the medium term, the low inflation environment will be growth enhancing”, he said.

The cut in the policy rate, which is the rate at which commercial banks borrow from the Central Bank, is the latest attempt to get commercial banks to lower their own lending rates.

“The anticipated continued slowdown in inflation in the medium term, together with the need to restore the growth process, provides scope for monetary policy easing,” the governor said.

According to the governor, he expected inflation, which last month fell into single digits for the first time in over four years, to remain around the bank’s central target of 9.2 per cent. This, he said, would be achieved in part by lower food and petroleum prices as well as fiscal consolidation.

Though all the macroeconomic indicators such as the treasury bill rates, inflation and the monetary policy rates have seen consistent decline over the past 12 months, which are supposed to 1 reflect in lower interest charges on loans, commercial banks still maintain rigidly high interest charges, which hovers around 28 to 30 per cent.

The governor, who singled out Standard Chartered Bank Ghana for praise for their quick response to policy cuts, said the Central Bank would give some incentives to commercial banks whose cost of borrowing reflected the policy rates.

Though, the governor did not say what those incentives would be, it is expected that the central bank will easily yield to request for some grants by the banks that respond to policy cuts.

“We are in discussions with the executives of the commercial banks and they have indicated to us what their problems are and we are yet to agree with them on certain terms”, he said.

Source: Graphic Business


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