Ghanaians and businesses may be celebrating the successive policy rate cuts by the Monetary Policy Committee of the Bank of Ghana (BoG), but a finance professor says the cuts will be less impactful if they fail to reduce the country’s high unemployment rate.
The aggressive decline in inflation has given the MPC room to cut the monetary policy rate successively. The 650 basis points cut is expected to result in the reduction of interest rates for the business community.
Prof. William Kwasi Peprah of Andrews University, speaking in an interview monitored by The High Street Journal, praised the Bank of Ghana’s recent moves to slash the monetary policy rate by 650 basis points over the last two meetings.
With inflation cooling to 11.5% in August, the lowest in four years, he believes the timing is right.
“We are almost close to our inflationary target of 8 plus or minus 2%. So, this strategy of the 650 basis points, from my perspective, is good,” he remarked.
Cheaper Credit Must Create Jobs
Lower policy rates typically mean cheaper credit for businesses. Prof. Peprah says that this should encourage companies to borrow, expand operations, and hire more workers. But Peprah cautioned that if businesses do not respond with expansion and employment, then Ghana risks cutting rates “for nothing.”
To him, cutting the policy rate must also ensure growth. That growth, he says, must be seen in the unemployment rate decline, which is very critical.
“We are anticipating that as the rate drops, companies may now start to expand their operations and employ more people. Employment from both formal and informal employment, we may see that the ratio has an impact. If this is not done, then whatever we have done is, I mean, will just solve one leg; the cutting monetary policy rate must also ensure growth. That growth must be seen in the unemployment rate decline, which is very, very important,” he noted.
The Human Cost of Jobless Growth
For a country with a high unemployment rate, coupled with a bulging youthful population, the stakes are high. The finance professor says that without job creation, rate cuts are little more than numbers on paper with very little impact.
Families struggling with unemployment won’t feel relief just because inflation is dropping or credit is cheaper.
He maintains that the real test lies in how the government ensures that the falling lending rates reduce joblessness.
“If they are unable to do this, then it becomes something else,” he warned, pointing out that growth without jobs risks deepening frustration among the youth, Ghana’s largest demographic.
A Bright Future Ahead
Prof. Peprah is optimistic that inflation may drop further in September and October. This, he says, will potentially bring Ghana’s inflation into its target band.
The anticipated further drop will give room for a further cut in the policy rate by the monetary policy committee, making credit cheaper for businesses to expand.
