Improved fiscal consolidation to reduce cost of credit – Governor


• The central bank says an improved fiscal consolidation will help reduce the cost of credit

• Banks in the country have been lending at exorbitant rates

• There are concerns over a gap disparity in the lending rates and monetary policy rate

The Bank of Ghana has pointed that an improved fiscal consolidation regime will help reduce the cost of credit in the country.

There have been growing concerns from economists and some think tanks over a gap disparity between the lending rate of banks and the monetary policy rate of the central bank.

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But Dr. Ernest Addison, Governor of the Bank of Ghana explained the country’s poor fiscal position, is one of the reasons for the high lending rates in Ghana.

“If you look at the macro side, one of the problems we have is the strong demand from the side of the budget. If we were seeing greater fiscal consolidation, you would expect that lending rates will also follow. I use the example of country’s that run balanced budgets. Currently, the banks are holding GH¢80 billion in government bonds. If Ghana’s revenues were equal to its expenditures, where do you think that money will be and what do you think will happen to interest rates in that context.”

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“So, the issue of fiscal consolidation is also very key in addressing this issue of the high lending rates. We are working at it; government is doing its part by trying to reduce the budget deficit. It’s not easy, but work is being done.”

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The Governor said this at the 102nd press conference of the Monetary Policy Committee.

Meanwhile, the Bank of Ghana has recently revealed average lending rates in Ghana have dropped from 28% in December 2016 to 20% in August 2021.

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