Government to engage banks on interest rates, (Tuesday, March 9, 2010, Page 33)

THE Government will engage banks in the country to deliberate on acceptable interest rate structure that would benefit all stakeholders, and also provide a platform for a healthy competition among the banks to ensure proper credit pricing, the Minister of

Finance and Economic Planning (MoFEP), Dr Kwabena Duffour, has said. He said the move was necessary because although the central bank had reduced prime rates, cost of borrowing at the various commercial banks in the country remained the same.

Dr Duffour made this known in a speech read on his behalf by the Director of Budget at the Ministry, Mr Simeon Patrick Kyei, during a Ghana Employers Association (GEA) meeting held in Accra.

The meeting aimed to enable the GEA to engage the MoFEP on the state of the economy, the MoFEP policy directions in 2010 and also to receive assurances from the government that the economy in 2010 would be conducive for the growth of business after a turbulent 2009 that was stifling to most companies and employers.

The meeting also discussed how the various sectors of the economy would be able to contribute towards the country’s economic growth and also provide the platform for the MoFEP to address concerns of the members of the GEA on the cost of borrowing.

According to the Finance Minister, the country’s economic policy would continue to focus on improving expenditure management, enhancing revenue mobilization and consolidating the macroeconomic stability while supporting the private sector to take the lead in the economic growth process.

Dr Duffour indicated that “as the disinflation process continues due largely to the macroeconomic stability, the reduction in commercial bank lending rates would be swift and timely to alleviate the hardships of the business community”.

He said it was important to note that commercial banks set their lending rates based on a number of factors which included inflationary expectations, noting that “with the continuous decline in inflation, we expect that commercial bank lending rates will begin to decline”.

He said the ministry was currently using moral suasion to encourage the commercial banks to respond to the diminishing inflationary expectations and the reduction in the prime rate by reducing their lending rates.

He, however, noted that moral suasion, as a management tool, has its own limitations, especially in a deregulated-interest rate environment.

Dr Duffour observed that the macroeconomic climate had provided some assurances to commercial banks “in terms of risk predictability, and this has encouraged them to respond positively to the decline inpolicy rate of the central bank”.

On the state of the economy, he noted that the country was now witnessing signs of stabilisation, which indicated that the government’s response to the situation through implementation of prudent monetary and fiscal policy was making a positive impact.

He said measures had been put in place to ensure that the fiscal consolidation and a strong currency, supported by the tighter monetary and lower food prices, continued to work to keep inflation down in order to ultimately affect interest rates.

Speaking to the Daily Graphic, the President of the GEA, Mr Charles Cofie, said the meeting had been a fruitful one as it was important that employers received assurance that the reduction in prime rate trickled down through to the commercial banks so that businesses would be able to have easy access to capital.

He said greater expansion of credit in the market to private sector operators would in turn enable businesses in the country to expand their operations.

“We want to have the confidence that things would indeed go right within the macroeconomy so that we could play our role from the micro level in order to contribute to the growth of the economy.
“It is our hope that as we strive for a stable economy, we would have low cost of goods and services, utilities that affect the average Ghanaian, because it is the level of disposable income Ghanaians have, which they would spend on goods and services and ultimately help in the expansion of businesses,” Mr Cofie stated.

The Executive Director of the GEA, Mr Alex Frimpong, for his part, told the Daily Graphic that the responses from the MoFEP was reassuring, and hoped that if the government stuck to the budgetary allocations spelt out in the 2010 budget, the country would make a lot of progress.

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