Is Increasing prime rate the solution?

It was no surprise when the Monetary Policy Committee of the Bank of Ghana announced that they have adjusted the prime rate by 1.5% in an attempt to reduce the quantum of money in circulation.

The little economics we were taught says that the Central banks normally do this to reduce the rate at which more money chases goods and services, hence control inflation. What we should realize now is that by applying this rule, one has to look at the special circumstance of the economy.

Our Economy in 2001 when the NPP led by Kufuor took over experienced these downward trends on macro economic indicators, which politicians used to coax the public about the mismanagement of the economy and therefore painted a picture that they can be our only savior. Of course they did their best during their eight years rule but what legacy was left behind after 2008?

We are now reversed to the same situation that they inherited making it seem like we are cursed to remain where we are.

Considering the reasons outlined by the Governor of a challenged economy and the reasons of increasing the prime rate, the paper also thinks that notwhithstanding the strong demand for goods and services which has impacted negatively on the rate of inflation hence informed this decision, we should as a nation priorities our activities and act accordingly. We have heard governments talk about growing what we consume and strengthening the private sector, making it the engine of growth, that by now is a laughable statement. By now we should know those were rhetoric's from past governments.

One question we should also deal with is why demand for foreign goods. The paper believes that we have totally neglected and allowed the ability to supply locally be challenged.

So if the BoG is now making credit expensive by increasing the prime rate, wouldn't this make things worse because it will now be very difficult for industry to borrow and produce to meet demands. Even with those in the import business will also be affected.Therefore prices are still going to be high in order to cover the cost of borrowing.

The Ghanaian Journal strongly believe that another challenge is the shortage of US $ in the economy and since our economy is import dependent, the only solution is how to deal with this shortage.