body-container-line-1
17.05.2011 Business & Finance

'Low Interest Rate Inappropriate'

17.05.2011 LISTEN
By Daily Guide

Standard Chartered Bank has stated that low interest rates will not be appropriate despite inflation hovering below 10 percent.

In its latest research dubbed, 'Ghana-Inflation Bucks the Regional Trend', the bank said despite Ghana producing oil in commercial quantities, credit growth has been a disappointment, adding the banking sector was saddled with high level of Non-Performing Loans (NPLs) until recently, largely due to official arrears.

It also noted that Ghana's fiscal deficit remained significant, as it was estimated at 6.4 percent of rebased Gross Domestic Product (GDP) in 2010.

'With expectations running high because of Ghana's new oil-producer status and elections due in 2012, spending pressures persist,' the research, led by Razia Khan, Regional Head of Research, Africa stated.

The report added that the authorities were also keen to extend the maturity of the domestic debt curve to reduce debt service costs further.

On inflation, it reiterated that while favorable domestic harvests and regulated fuel prices have stopped it from rising rapidly, it expects sustained pressure on the Consumer Price Index going forward.

Inflation dropped from 9.13 percent in March 2011 to 9.02 percent in April 2011, mostly due to abundant food stock and relative stable exchange rate.

On the exchange rate, it explained that it will be increasingly difficult for the authorities to rely on currency strength alone to contain inflation indefinitely, especially with nominal yields rising even faster in other African markets.

On fuel, it projected further fuel-price adjustments if global oil prices do not fall significantly in the coming months. Notwithstanding Ghana's new oil-producer status, output was now reported to be in excess of the country's crude import requirement and the research noted that it will still add to the sizeable fiscal pressures facing Ghana.

The study however reported a strong rise in bank credit.

'With financial soundness indicators of Ghana's banking sector improving, an acceleration in credit growth to the private sector looks plausible. This would be the wrong point in Ghana's cycle to consider renewed interest rate easing in view of the latent concerns over the transmission mechanism of monetary policy.'

Food inflation reduced marginally to 4.18 percent in April 2011 from 4.59 percent recorded in March, while the non-food inflation inched up to 12.16 percent from 12.00 percent in March 2011.

By Charles Nixon Yeboah

body-container-line