‘BoG ill-equipped to reverse falling cedi, rising inflation’

Mr Francis Kofi Benteh, Vice President of Global Investment Bankers Limited, has expressed doubt about the Bank of Ghana’s (BoG) ability to deal with the mounting inflationary trends and persistent fall of the cedi. The central bank moved last week to control rising inflation by increasing its monetary policy rate by percentage point.

The bank noted that the risks to the fiscal outlook had increased on account of underperformance of government revenues, the rising share of compensation of employees in domestic revenues and the increasing difficulty of raising financing from traditional sources.

However, Mr Benteh told Ghana News Agency at the weekend that the BoG is not equipped to fight structural issues, like budget deficits, budget overrun, low commodity prices at the international market and high import dependency.

According to the investment banker, pushing up the policy rate was utterly unnecessary and could have been spared if the Monetary Policy Committee (MPC) was concerned that, without policy accommodation, economic growth would not be strong enough to generate sustained improvement in labour market conditions.

“The frustration about the BoG is that they are done about everything in their policy toolkit to fight the problems of our economy for now. “I am doubtful that the BoG’s efforts will have much of an effect… The problems with our economy today are largely structural and there’s little, if any, the BoG can do about them in the short-run,” he added.

Mr Benteh explained that raising the policy rate would increase lending rates of commercial banks and dampen the spirit of doing business in the country due to high uncontrolled cost. “The move will only succeed to push up lending rates and increase the cost of capital for businesses which are already facing low levels of demand influenced by high inflation.”

He urged government to stop “priding itself as the best borrower” in the economy and crowding out the private sector, a phenomenon that has contributed to ballooning public sector debt to about GH? 58 billion.

Mr Benteh said the European Central Bank had taken a raft of unconventional steps to boost credit by adopting negative interest rate through offering cheap and long term loans to banks to leverage on the economy.

He expressed regret that the reverse happens in Ghana where banks are so attracted by government rates that they take deposits from the public and invest in government instruments with 91 days bill standing at about 24 per cent.

The MPC of BoG increased the policy rate by 100 basis points after the committee’s meeting on July 9, while government statistician also announced that that year-on-year inflation jumped to 15.0 per cent in June from 18 per cent. But, the banker said the MPC could have maintained the policy rate and that could have boosted business confidence and impacted positively on the economy.