The Governor of the Central Bank, Mr Kwesi Bekoe Amissah-Arthur, has said that suggestions by experts for direct market intervention to bring down interest rates are only short term measures that will not yield the necessary policy space for lower interest rates. Analysts and experts have suggested among other policy actions the prescription of upper and lower limits on lending and deposit rates within which banks could set their rates. But this, Mr Amissah-Arthur said "appear to be short-term fixes". According to him, embarking on such an action would not achieve the objective of lowering lending rates in a sustainable manner. The governor explained that unlike fiscal icy, monetary policy, which stimulated economy, required almost three to six months for any policy direction to be felt. . The solution, he said, laid in a framework, established sustainable low interest rates in the economy. Business leaders, economists and experts in the economy have lashed out at commercial banks for maintaining high interest rates following a 200 basis point cut, from 18 per cent to 16 per cent, in the policy rate of Bank of Ghana in February. Although, most of the banks have revised their interest rates marginally downwards, are still ridiculously high for most businesses in the country. The Bank of Ghana maintained that it would only use moral suasion to appeal to banks to lower interest rates. Beyond such an action, the central bank had stated time and again that the market forces were the best determinants of interest rates. However, many have questioned the basis for such market forces of demand and supply to determine prices in a country like Ghana, while capitalist oriented countries like the United States of America and the United Kingdom had at a point in time intervened in their economy. Research conducted by Professor Cletus Dordunoo has revealed that Ghana's interest rate was far higher than the average rate of interest in Sub-Sahara Africa by 14 per cent. Ghana's average interest rate as of now is about 30 per cent, which is the highest in Sub-Sahara Africa. Business leaders such as the President of the Ghana National Chamber of Commerce and Industry, (GNCCI), Mr Wilson Attah Krofah, have decried the high interest rates which he said was affecting businesses in the country and therefore did not make Ghanaian products competitive within the sub-region and beyond. According to the Mr Charles Coffie, the CEO of Unilever Ghana limited, the government must take the necessary policy actions that would encourage consumption and spur growth in the economy. He alluded to the fact that recent actions by the government such as payment of arrears to contractors were in the right direction. "Following the initial government disbursement to road contractors, there was significant uplift in market activity through the multiplier effect. Unfortunately this heightened economic activity has since dampened as the flow of government spending is being re-directed and refocused once again,” Mr Coffie indicated. Many point to the fact that with a vision to become the financial hub for West Africa, the prevailing interest rates which are as high as 30 per cent, did not make Ghana an attractive destination for business and financial services. Analysts say the financial statements of banks, as published at the end of March this year, and as mandated by the Central Bank had shown that banks were the most profitable businesses in the country with some banks recording profit after tax of more than 50 per cent, thereby debasing the argument that the risk profile of the country was too high. Over the past weeks, there has been a raging debate on the need for banks to bring down their interest rates, with some analysts calling on the central bank to make a direct intervention. However, Mr Amissah-Arthur said “we are not focused on short-term fixes which tend to distort the market, but rather on a long-term aim of price stability”. One of the long-term measures the Bank of Ghana is pursuing is the objective of price stability which it hopes will impact positively on the long-term private sector growth. The focus of this policy of price stability hinges on two important elements as outlined by the governor - lower inflation and increased access to credit. “In our quest to promote private sector activities, therefore, we must ensure and sustain macroeconomic stability as a necessary condition for business growth,” governor Amissah-Arthur reiterated. According to data from the Bank of Ghana, outstanding bank credit to the private sector as a share of the Gross Domestic Product increased from 14.1 per cent in 2001 to 29.7 per cent in 2008 and declined to 26.6 per cent by the end of last year. Mr Amissah-Arthur assured the private sector that improvements in macro-economic outlook and the gradual easing of interest rates were likely to generate a rebound in private sector credit for this year. However, he was quick to add that there was the need to move beyond the creation of a favourable macro-economic environment and take proactive supportive measures such as improving infrastructural base of the economy to promote private sector growth. Besides these initiatives, the central bank governor said the operation of the Credit Reference Bureau as well as the establishment of a collateral registry that would enable banks and financial institutions to secure their credit in an efficient and transparent manner would all help in addressing the challenges of risk that the banks complain about. Analysts say under the collateral registry, banks will have to furnish the particulars of all submitted collateral to the registry in support of credit applications. The registry will help identify ownership of collateral and stop the practice of borrowers assigning the same collateral to several lenders. Beyond this, however, governor Amissah-Arthur opined that there was the need to develop long-term financing such as venture capital funds to mobilise funds for the private sector. “If the private sector is to grow in a sustainable manner, other long-term , financing options through equity injection, grants and reinvested earnings must be explored,” he stated. Business leaders also maintain that the government should stimulate demand by spending in areas that had the capacity to propel the economy. That could be achieved through further cuts in the policy rate, and subsequently, the interest rates, industry watchers propose: Source: Graphic Business/Ghana