Mr Kwesi Amissah-Arthur, Governor of the Bank of Ghana (BOG), on Wednesday said Ghana's recent macro-economic stability and subsequent reduction in the policy rate were necessary for rebound in private sector activities.
He said the move was however not sufficient, stressing: "It is important to move a step beyond the creation of a favourable macro-economic environment and take proactive supportive measures such as improving the
infrastructural base of the economy to promote private sector growth," he said.
He was speaking at a seminar organised for chief executives of Ghana Employers Association to share thoughts on the topic: "Reduction in the
Policy Rate and its Implications for Private Sector Growth," in Accra.
Mr Amissah-Arthur said improvement in macro-economic conditions and the gradual easing of interest rates were likely to generate a rebound in private sector credit in 2010.
"Already, we are beginning to see signs of growth at the margin. The annual growth rate of credit of the banking system increased from 16.1 per cent in December 2009 to 16.5 per cent in January 2010."
Mr Amissah-Arthur observed that the banks had started reducing their base rates in response to the easing monetary policy stance.
He said despite the fall in base rates, average lending rates of the banks had declined from 37 per cent to 32 per cent.
"The main contention of the private sector with the banks; is the refusal to synchronise the size and speed of banks' response to changes in
the policy rate and other market interest rates. This has led to calls for BOG to force the banks to lower their rates," he said.
He expressed dissatisfaction about the prescription of some of the participants about the maximum margins on lending and deposit rates within which banks could set their rates, saying the suggestion was a short-term measure that would not lead to the lowering of lending rates in a sustainable manner.
"Unlike fiscal policy which impacts directly to stimulate an economy, monetary policy works indirectly and with a lag. It is for this reason that the bank is working systematically to create a framework that establishes sustainable low interest rates in the economy," he said.
Mr Amissah-Arthur said the development of Ghana's capital market must expand opportunities for the private sector to mobilise long-term finance for their businesses.
"This calls for good corporate governance measures for efficient management and adaptation of standardised accounting principles to increase shareholder interest, "he added.
Mr Amissah-Arthur called for deepening of measures to enhance transparency and full disclosure of bank lending rates, in order for the borrowing public to make informed choices.
"The annual percentage rate provides the true cost of credit and the publication of these rates in the print media is one of such instruments.
These. together with the central bank's efforts at anchoring inflation expectations in the economy will eventually reduce bank lending rates in line with other rates."
Mr Amissah-Arthur called for improvement in the governance, management and performance of Ghanaian companies to strengthen the financial sector for the long-term growth of the economy.
He gave the assurance that BOG would continue to pursue policies that would promote price stability as well as create efficient and competitive banking sector to deepen financial intermediation at reduced costs.