Reduce Policy Rate Now. 26% Policy Rate Causes More Unemployment

In the midst of a high unemployment rate of 48% (according to the World Bank), it is needless to hold policy rate at 26% with the intention to stabilise inflation or keep macroeconomic stability. The Alliance for Accountable Governance (AFAG) is worried that the monetary policy committee was not able to fathom the overwhelming consequences of staying interest rates at 26% the highest in over 10 years.

Ladies and gentlemen of the press, basic understanding of economic policy shows that, a high interest rate basically indicates;

• A decrease in consumption hence demand-pull inflation controlled;

• People prefer to buy treasury bills than to invest hence a system that increases domestic borrowing by government, thereby crowding out private sector development/investment. This scenario points clearly to the fact that the Mahama-Arthur Amissah administration has created an environment unfriendly for businesses.

• Firms (private sector) pay more on interest with little to invest to create jobs or for government to generate revenue. The Vice President should know that this is a recipe for lay offs and high unemployment.

• Decrease in aggregate demand
Fellow Ghanaians, at a time all political parties are talking about public private partnership or private sector development, it is illogical on one hand to see the policy committee committing itself to only inflation control as it's main reason for keeping the policy rate at 26% knowing very well it's effect on the cost of doing business. Interestingly, on the same day (20th September 2016) when the new BOG boss Dr. Abdul-Nashiru Issahaku announced the new policy rate, the Vice President Mr. Amissah Arthur who was also a former Governor of the Bank of Ghana and currently the chairman of the Economic Management Team (EMT) on swearing in the new Bank of Ghana board members, charged them to see to a reduction in the cost of doing business.

The Vice President Mr. Amissah Arthur in his argument admitted that "the high interest rate regime has deepened the challenge for most businesses especially SMEs, to access credit and expand. According to him, the situation has also contributed to the growing unemployment rate in Ghana".

Fellow countrymen, something is critically wrong with economic management and monetary control policies presently. Is it not ironical for a former Governor and now Vice President to charge the highest decision making body of the Bank of Ghana to check the high interest rate as opposed to the current Governor doing otherwise? Another fundamental question is that; How can the BOG keep policy rate down when indeed, government has crowded the private sector out of the capital market in the first place?

It is our position that the policy rate pegged at 26% after the 71st monetary policy committee was an error in judgment, myopic, bogus and not in the interest of doing business in Ghana. No wonder many multi-nationals are relocating to the Ivory Coast.

What the Vice president is failing to tell Ghanaians is that the situation is the doing of the Mahama Administration. He is clearly making the BOG a scapegoat for their poor economic management.

High unemployment cannot be associated with BOG policy rate alone, unless the Vice President has lost his knowledge of economics. One of the fundamental causes in the current environment is the atrocious taxes introduced by Seth Terpker over the last few years.

Finally, AFAG calls on the BOG boss to wake up from his slumber for the challenges in the economy with regards to monetary supply is more than the simple balance between inflation stability and interest rate. we call on the Association of Ghana Industries(AGI) and all well meaning civil society groups to bring the necessary pressure to bear on the bank of Ghana to see to expedited efforts at decreasing interest rate. This we believe will grow investments for SMEs and help decrease unemployment rate.

Signed
AFAG LEADERSHIP