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GNCCI welcomes 25% policy rate, urges banks to lower lending rates

GNCCI Applauds Bank of Ghana's 25% Policy Rate Decision, Calls for Swift Reductions in Bank Lending Rates

In a significant development for Ghana's economic landscape, the Ghana National Chamber of Commerce and Industry (GNCCI) has expressed strong support for the Bank of Ghana's recent decision to maintain the monetary policy rate at 25%. This endorsement comes amid ongoing efforts to stabilize the nation's economy, which has been grappling with inflationary pressures and currency volatility. However, the GNCCI has not stopped at mere approval; it has issued a fervent call to commercial banks across the country to promptly adjust their lending rates downward in response to this policy stance. This move, according to the chamber, is essential for alleviating the financial burdens on businesses and fostering a more conducive environment for growth and investment.

The Bank of Ghana's Monetary Policy Committee (MPC) announced the retention of the policy rate at 25% during its latest meeting, a decision that reflects a cautious approach to managing inflation while supporting economic recovery. The policy rate, often referred to as the benchmark interest rate, serves as a key tool for the central bank to influence borrowing costs, control money supply, and curb inflationary trends. By keeping it at 25%, the Bank of Ghana aims to strike a balance between taming rising prices and avoiding overly restrictive measures that could stifle economic activity. This rate has remained unchanged from previous adjustments, signaling a period of relative stability in the central bank's strategy.

The GNCCI, a prominent advocacy group representing businesses of all sizes in Ghana, welcomed this decision in a press statement released earlier this week. The chamber highlighted that maintaining the rate at 25% demonstrates the central bank's commitment to predictability and stability, which are crucial for business planning and investment decisions. "We commend the Bank of Ghana for its prudent management of the monetary policy rate," the statement read. "This level provides a foundation for economic steadiness, allowing businesses to navigate the current challenges with greater confidence." The GNCCI emphasized that such stability is particularly vital in the wake of global economic uncertainties, including fluctuating commodity prices and supply chain disruptions that have affected Ghana's import-dependent economy.

Despite this positive reception, the GNCCI's statement was quick to pivot to a pressing concern: the persistently high lending rates charged by commercial banks. In Ghana, banks often set their lending rates significantly above the central bank's policy rate, incorporating risk premiums, operational costs, and profit margins. This discrepancy has long been a point of contention for the business community, as it results in borrowing costs that can exceed 30% or more for many enterprises. The chamber argues that with the policy rate now firmly at 25%, there is ample room for banks to lower their rates, thereby passing on the benefits of monetary policy to the real economy.

Elaborating on this urge, the GNCCI pointed out that high lending rates have been a major barrier to business expansion and job creation in Ghana. Small and medium-sized enterprises (SMEs), which form the backbone of the nation's economy, are particularly hard-hit. These businesses often rely on loans to finance operations, purchase inventory, or invest in technology, but exorbitant interest rates make such financing unaffordable. "It is imperative that banks respond swiftly by reducing their lending rates," the GNCCI urged. "This will not only ease the cost of credit but also stimulate economic activity, encourage entrepreneurship, and contribute to overall national development." The chamber suggested that a reduction in lending rates could lead to increased credit uptake, higher productivity, and ultimately, a boost in GDP growth.

To understand the broader context, it's worth examining Ghana's recent economic trajectory. The country has faced a series of challenges, including high inflation driven by external factors such as the Russia-Ukraine conflict, which disrupted global food and energy supplies, and domestic issues like fiscal imbalances. Inflation peaked at over 50% in late 2022, prompting aggressive rate hikes by the Bank of Ghana. While inflation has since moderated—dropping to around 23% in recent months—the lingering effects continue to strain households and businesses alike. The cedi's depreciation against major currencies has further compounded these issues, increasing the cost of imports and fueling imported inflation.

In this environment, the GNCCI's position aligns with broader calls from economic stakeholders for more accommodative financial conditions. Industry experts note that when the central bank signals stability through a steady policy rate, it creates an expectation that commercial banks will follow suit. However, historical patterns in Ghana show that banks have been slow to adjust, often citing high non-performing loans and liquidity concerns as justifications for maintaining elevated rates. The GNCCI counters this by advocating for regulatory incentives or guidelines from the Bank of Ghana to encourage faster pass-through of policy rate changes to lending rates.

Delving deeper into the potential impacts, a reduction in lending rates could have ripple effects across various sectors. In agriculture, for instance, farmers could access cheaper credit to invest in modern equipment or expand cultivation, potentially increasing food production and reducing reliance on imports. The manufacturing sector, which has been vocal about high borrowing costs stifling innovation, might see a surge in investments in machinery and workforce training. Similarly, the services industry, including retail and hospitality, could benefit from improved cash flow, leading to more hiring and consumer spending.

The GNCCI also touched on the role of government policies in complementing these monetary measures. They called for continued fiscal discipline, including efficient public spending and debt management, to support the central bank's efforts. Ghana's ongoing negotiations with international creditors, such as under the IMF's Extended Credit Facility program, underscore the need for coordinated economic strategies. The chamber expressed optimism that with lower lending rates, businesses could contribute more effectively to revenue generation through taxes, aiding the government's fiscal consolidation goals.

Looking ahead, the GNCCI's statement serves as a reminder of the interconnectedness between monetary policy, banking practices, and real economic outcomes. If banks heed the call and lower rates, it could mark a turning point in Ghana's recovery narrative, fostering an environment where businesses thrive rather than merely survive. However, should banks delay or resist, it might exacerbate frustrations within the business community, potentially leading to further advocacy or even policy interventions.

In conclusion, the GNCCI's welcoming of the 25% policy rate is a vote of confidence in the Bank of Ghana's direction, but it is tempered by a realistic assessment of the challenges ahead. By urging banks to lower lending rates, the chamber is championing the interests of Ghanaian enterprises, emphasizing that true economic progress requires not just stable policies but also accessible financing. As the nation continues to navigate its path toward sustainable growth, the response from the banking sector will be closely watched by all stakeholders. This development underscores the ongoing dialogue between policymakers, financial institutions, and the business community, all aimed at building a resilient and prosperous Ghana.

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Read the Full Ghanaweb.com Article at:
[ https://www.ghanaweb.com/GhanaHomePage/business/GNCCI-welcomes-25-policy-rate-urges-banks-to-lower-lending-rates-1994109 ]