The Ghana Union of Traders Association (GUTA) has strongly criticized the Bank of Ghana’s recent policy rate increase by 100 basis points to 28%, arguing that the move will further burden businesses and stifle economic growth.
According to Charles Kusi Appiah Kubi, Head of GUTA’s Business and Economic Bureau, the hike in the policy rate will lead to higher lending rates from commercial banks, increasing the cost of borrowing. This, in turn, will escalate production costs and hinder business expansion especially at a time when businesses are already grappling with high interest rates and economic uncertainties.
“We are already saddled with high interest rates which are adding up to the cost of production and doing business in Ghana. The Treasury Bill rate is coming down because the government want to consolidate its fiscal expenditure and appetite for borrowing in the money market.
“The reduction of the Treasury Bill rate should have had some positive bearings on inflation and policy rates, but we are not seeing that. This poses some economic challenges in the economy,” he told The High Street Journal in an exclusive interview.
Alternative Strategies to Control Inflation
GUTA questions the effectiveness of monetary tightening in tackling Ghana’s inflation, noting that high inflation in the country is primarily driven by cost-push factors rather than excessive demand.
Instead of raising the policy rate, GUTA suggests alternative measures, including VAT System Reform; thus lowering consumption tax rates could ease the burden on businesses and consumers, ultimately reducing prices and supporting the disinflation objective.
Also, the government’s reassuring Public-Private Partnerships (PPPs) is key. Encouraging long-term investments through domestic bonds and capital-raising initiatives could help stabilize the economy without exerting additional pressure on businesses.
Charles Kusi Appiah Kubi proposes government could adopt targeted fiscal measures, such as revising the Treasury bill rate to attract investments and absorb excess liquidity in the economy.
“Low returns on investments through Treasury bills have increased the supply of money relative to the size of the economy. As monetary policy measures, it is incumbent on the Central Bank to mob up such excess liquidity from the market to control inflation whilst giving the local currency some strength to compete with the major currencies. In doing so, you have to be tactful and circumspect in order not to hurt businesses and the economy,” he noted.
Impact on Banks and Financial Markets
GUTA also warns that the rate hike could exacerbate liquidity risks for banks, particularly those already dealing with high non-performing loans (NPLs). A reluctance among banks to lend to businesses could slow economic activity and deepen financial sector challenges.
A Call for Strategic Economic Interventions
With businesses facing mounting challenges, GUTA urges the government and the central bank to explore a more balanced approach to inflation control. By prioritizing VAT reform and strategic fiscal policies over aggressive monetary tightening, Ghana could achieve price stability while fostering a more conducive business environment.
Source: Joseph Yoyowah || TheHighStreetJournal
March 29, 2025