Spokesperson for Vice President Mahamudu Bawumia, Dr. Gideon Boako, has issued a response to recent editorials penned by Bernard Avle, the host of Citi FM’s morning show.
In a post dated February 19, 2024, on platform X, Dr. Boako raised concerns about the appropriateness of Avle’s suggestion for the government to explore a Negative Interest Rate Policy (NIRP).
He expressed surprise at Avle’s stance, particularly in light of his previous commentary on exchange rates and interest rates.
Dr. Boako’s remarks underscore the significance of Avle’s proposal and invite further discussion on its merits within the context of economic policy.
“In this country of highly opinionated people, let the Central Bank bring a negative interest rate policy, and you would hear the same people talking as if the country is collapsing,” his post read in part.
The Tano North parliamentary candidate for the New Patriotic Party (NPP) went on to give an economic explanation of how unrealistic Avle’s position was.
In his concluding remarks, he asked whether criticism of the government was just for the sake of it.
“Let’s be measured in our policy prescriptions in our attempt to criticise. Is there a reward for overly criticising the government? I would like to know,” Boako asked.
According to a 2020 article on the International Monetary Fund (IMF) website, a negative interest rate is a concept that has emerged as central banks seek to navigate economic cycles through monetary policy.
Traditionally, central banks have implemented positive nominal interest rates when lending short-term funds to regulate economic activity.
However, in response to persistently weak growth following the 2008 global financial crisis, several central banks, such as the European Central Bank and those of Denmark, Japan, Sweden, and Switzerland, have adopted low-rate policies, including experimenting with negative interest rates.
In essence, negative interest rates entail central banks charging financial institutions for holding excess reserves, essentially incentivizing banks to lend out these funds rather than keeping them idle.
The objective is to stimulate lending activity and boost economic growth by discouraging banks from hoarding cash.
This unconventional approach challenges conventional notions of finance: savers may experience negative returns on their deposits, while borrowers may effectively receive payments to borrow money.
Fundamentally, interest represents the cost of borrowing or the price of money. It reflects the compensation a borrower agrees to pay a lender for the use of their funds, taking into account associated risks and market conditions.
However, the implementation of negative interest rates introduces complexities and nuances to this traditional understanding of interest dynamics.
Read his full post below:
I listened to my friend @benkoku on many things he considers the ills of government. He may have some points right, but the talk about this government inheriting a cedi-dollar exchange rate of 3.8 in 2017 is a bit surprising.
Where is that figure coming from? Also, is he asking the central bank to come up with a negative interest rate policy (NIRP)?. And why?
Yes, we need to get the current levels of nominal interest rates down but the call for a negative interest rate is not the way to go, if indeed we understand what a negative interest rate is/means.
In this country of highly opinionated people, let the Central Bank introduce a negative interest rate policy, and you would hear the same people talking as if the country were collapsing.
It is instructive to note that while the real interest rate can flexibly fall into the negatives when inflation exceeds the normal interest rate, the latter is bounded by zero.
The zero bound nominal interest rate means that to have a negative interest rate, it is simply saying the nominal interest rate must fall below zero.
The practical effect is that instead of earning interest on your savings, you would rather be required to pay the banks to keep your money for you. In a crude way, negative interest rates impose a tax on your savings instead of earning income from them. Is this something @benkoku will support if it happens in Ghana? Central banks only adopt the policy of negative interest rates as a ‘desperate’ measure to stimulate spending.
Yes, we need interest rates to go down but the call for stepping beyond the theoretical bound of zero is not something that will ultimately be beneficial to Ghana and its citizens. Let’s be measured in our policy prescriptions in our attempt to criticize. Is there a reward for overly criticising the government? I would like to know.
Most useless government in the his history of governance in Ghana