An economist, Dr Kofi Orlins-Lindsay, says the Bank of Ghana’s (BoG) decision to maintain the monetary policy rate at 26 per cent is a clear indication that the economy is not growing as expected.

He said “if the economy was to be growing and livelihoods were being improved, the BoG would have reduced the policy rate.”

The policy rate, which has been maintained at 26 per cent since November last year, is the highest lending rate over a decade now, despite three separate review meetings held by the BoG's Monetary Policy Committee (MPC).

Dr Orlins-Lindsay told Onua FM that the “the high inflation is the main reason the BoG cannot reduce the lending rate because a low lending rate in this economic climate will push inflation higher than current levels.”

A low lending rate is likely to reduce interest on loans commercial banks give out to businesses to expand their activities. However, businesses complain that access to loan is currently difficult and expensive due to the high interest rates on loans by banks.

The 2016 first quarter Business Barometer Report published by the Association of Ghanaian Industries (AGI) ranked access to credit as the fourth major challenge industry is facing in the country.

High cost of utility, multiplicity of taxes and exchange rate volatility were the only challenges facing businesses that were ahead of access to credit.

Economy under threat?

“Once government aims at achieving single digit inflation, it is likely the BoG will continue maintaining the policy rate at 26 per cent or even possibly increase it if economic conditions demands it,” Dr Orlins-Lindsay said.

The Monetary Policy Committee of the Bank of Ghana (BOG) kept its policy rate at 26 per cent because of macro economic conditions that could threaten economic growth and inflation, the BoG said on Monday.

Chairing his first MPC meeting since becoming governor of BOG, Dr. Abdul-Nashiru Issahaku said “in assessing the current economic conditions, the Committee views the risks to inflation and growth as balanced and therefore decided to maintain the monetary policy rate at 26 per cent.

"The Committee remains committed to its price stability mandate and will continue to monitor developments in the economy and take further policy actions, if necessary,” he added

He said “since the last meeting of the Committee, there have been two readings of inflation. Headline inflation rose to 19.2 percent in March, from 18.5 percent in February. The sharp increase in March was largely influenced by the lagged effect of the upward adjustment in transport costs.

“In April, however, inflation declined to 18.7 percent following a slowdown in non-food inflation. The monthly inflation rates also slowed, supported by stability in the exchange rate,” the Governor said.

“There are, however, risks in the inflation outlook. These include unanticipated upward adjustments in utilities and petroleum product prices and possibly second round effects from such adjustments on prices. The slow but persistent pickup in food inflation, since August 2014, is also a source of concern for inflation.”

Moreover, “the growth outlook is broadly positive contingent on sustained improvements in the energy supply, continued stability in the local currency and additional oil and gas production. However, risks such as tight credit conditions and continued tightness in the fiscal stance may moderate the pace of economic activity,” Dr. Issahaku said.