The Bank of Ghana (BoG) has dismissed claims that it benefits from a high policy interest rate.
The central bank noted that a high interest rate rather raises the cost of open market operation which results in the bank’s losses.
“Bank of Ghana does not benefit from high interest rates. On the contrary high interest rate raise the cost of open market operations and lead to central bank losses. But It is a necessary price to pay to bring down inflation,” it said in a post on its X platform.
— Bank of Ghana (@thebankofghana) May 18, 2024
The central bank’s comment comes at a time Togbe Afede XIV, the Agbogbomefia of the Asogli State, expressed concerned about the BoG’s interest rates.
In the view of Togbe Afede the local cedi would continue to suffer adverse consequences as long as the interest rates are kept “unnecessarily high”.
The BoG highlighted that the latest forecasts indicate a potentially elevated trajectory, with factors contributing to possible adjustments in transport fares, utility tariffs, higher fuel prices and the pass-through effects of exchange rate depreciation.
However, Togbe Afede XIV, in his April 11, 2024 piece, said that the cedi will have pass-through effects on other prices, including transport fares, utility tariffs and fuel prices.
“The truth is, all these variables are related. Whilst the policy rate is an important tool of monetary policy, its misuse, as in our case, can have damaging effects. As long as interest rates are kept unnecessarily high, our currency, the cedi, will continue to suffer adverse consequences, with pass-through effects on other prices, including transport fares, utility tariffs and fuel prices. Persistent cedi depreciation has been a key factor in our energy (including power) sector problems. We have always felt the need to adjust prices, not because consumers were not paying enough, but because the cedi has been depreciating.”
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“BOG concluded that their monetary policy rate decision underscores their commitment to balancing economic stability amid persistent “inflationary risks” and supporting the sustainable growth of the economy. But economic stability and sustainable high growth will remain elusive as long as interest rates stay astronomically high,” he added.
He pointed out that the BoG is in a difficult situation with its negative net worth of GH₵55 billion, emphasizing that it will be hesitant to ensure interest rates fall quickly.
“With a GH₵55 billion negative net worth, BOG is indeed in a quagmire and would be reluctant to see interest rates fall quickly at this critical time when it needs to make more money to survive. And its new tiered Cash Reserve Ratio (CRR) system should bring it more free cash for its exploitative and predatory lending activities. This is in addition to its power to print money,” Togbe Afede XIV said.
