Dr Kwabena Duffuor, Minister of Finance on Wednesday said interest rates will fall appreciably towards the end of the year given the steady decline of inflation rate.
He said government was negotiating with the financial institutions for them to reduce the rates to a level that the private sector could access loans for businesses to thrive.
Dr Duffuor was answering questions in Parliament on the measures government is taking to stimulate productivity and economic growth as well as the private sector.
He said: “There has been a precipitous decline in interest rates on the auction market from December 2009 to date with the short end of the money market recording the sharpest decline.”
The Finance and Economic Planning Minister said the bench mark average interest rate on the 91-day Treasury bill reduced from 24.9 per cent recorded in December 4, 2009 to around 17.8 per cent on February 5, 2010.
Dr Duffuor said similarly interest rate on the 182-day Treasury bill dropped from 27.96 per cent as at December 4, 2009 to 19.4 per cent on February 5, 2010. Whilst the 1-year Treasury note also recorded a downward movement from 25.5 per cent as at December 4, 2009 to 18.5 per cent as at February 5, 2010.
“This is a clear indication that policies are working and the economy is entering into a cycle of declining interest rates,” he said adding that government expected the banks to take a cue from these favourable developments and adjust accordingly.
He said gross reserves had shot up to about 3.0 billion dollars equivalent to 2.5 months of import cover for goods and services as at end December 2009 compared with the 2.0 billion dollars equivalent to 1.7 months of import cover recorded at the end of December 2008.
Dr Duffuor explained that this would further provide strength to the cedi and enhance its competitiveness with the view to making Ghana attractive to foreign investors.
The microeconomic achieved so far, according to the minister, had brought about some certainty, which would enable the private sector to plan and thrive.
“We have seen a six successive months of sustained appreciation in the value of the domestic currency against the dollar,” he said, adding that this was expected to have a calming effect on inflationary pressures in the economy.
Dr Duffuor said government would make the current minimum wage “tax exempt.”
He explained that the increase in the disposable income would step up consumption leading to a rise in aggregate demand, which would boost productivity and economic growth.
The government, he said, had introduced a new pension scheme that would have a positive impact on the economy.
He said the annual estimated voluntary contributions in the initial years of its operation would generate more than one billion Ghana cedis.
“This amount will provide substantial support to national savings and will contribute significantly to the pool of long term funds available for investments, which will accelerate national economic development,” he said.
The minister said the funds would among others provide impetus to the development of the Ghanaian financial market to support the private sector.