Bank of Ghana Governor, Mr Kwesi Bekoe Amissah-Arthur, says the Central Bank is adequately prepared to avert the depreciation of the cedi which might arise from the implementation of the Single Spine Salary Structure (SSSS) and the sale of crude from the country’s
He said there was the likelihood that the SSSS and the sale of crude oil would cause more money to be put into circulation, thereby threatening the stability of the cedi and the current single-digit inflationary rate.
In an interview with the Daily Graphic in Accra yesterday to mark his first year in office as the Governor of the Central Bank, Mr Amissah-Arthur said the BoG had budgeted adequate resources to mop up the excess liquidity in the economy which might come about as a result of the SSSS, oil and cocoa purchases in the country.
The BoG Governor explained that the Central Bank would continue to employ certain fiscal tools such as the open market operations, the issuance, buying and selling of bonds and bills to avoid the free fall of the cedi and the runaway inflation resulting from the upsurge in money supply in the economy.
He further explained that since developments on the markets were a reflection of the economic conditions in the country, the increase in money supply which did not match the corresponding appreciation in the supply of goods and services would have a concomitant and devastating effect on the stability of the cedi and the rate of inflation.
When asked to comment on what had necessitated the continuous decline in the Base Rate of the BoG over a period of time, Mr Amissah-Arthur said the situation had resulted from a number of factors, including controlling fiscal deficits, less borrowing by the government and the decline in the rate of inflation.
He said over the period, the BoG had worked hard to ensure that the payment of salaries of workers which kept increasing with the passage of time, the payments to contractors and high demand for goods and services did not get more money into circulation to result in an increase in the rate of inflation.
The BoG Governor said the reduction in the base rate had led to a positive response by Commercial Banks in the country, which has also reduced their lending rates to ensure that the manufacturing, industrial and commercial sectors contracted loans at favourable rates to expand their operations.
Mr Amissah-Arthur said the reduction in the base rate, coupled with the stabilisation of the cedi and the reduction in the inflationary rate, was a positive incentive for investment in the country.
Passing comments on the inability of the Commercial Banks to immediately adjust their lending rates whenever the BoG announced changes in the base rate, he explained that interest rates of Commercial Banks were fixed over a period of time, which must elapse before they were reviewed.
He gave the assurance that the BoG would continue to exercise its functions as the nation’s Central Bank to promote growth of the economy to attract the needed investment for the material and social development of the country.
Source: Daily Graphic