September 20, 2020
Clickongh

Bank of Ghana maintains policy rate at 14.5%

The Monetary Policy Committee of the Bank of Ghana has maintained the policy rate at 14.5 percent after a similar decision in May this year.

The rate is of keen interest to businesses, as it determines the rate at which the BoG lends to commercial banks, and subsequently influences interest rate on loans.

The Governor of the Central bank, Dr. Ernest Addison, attributed the decision to uncertainties in the economy caused largely by the Covid-19 pandemic.

In March this year, the MPC reduced the rate by 150 basis points from 16 percent to 14.5 percent, and the figure was maintained in May 2020.

Dr. Ernest Addison says maintaining the policy rate was necessary to ensure price stability and also help cushion various businesses amidst the Covid-19 pandemic.

After giving an overview of the economy and threats posed by the pandemic, Dr. Addison said, “The Committee was of the view that the current extraordinary  circumstances, with a widened budget deficit and a residual  financing gap, would require some monetary restraint to preserve the  anchors of macroeconomic stability. In the circumstances, the  Committee decided to maintain the policy rate at 14.5 percent”.

Touching on Inflation, a key driver of the policy rate, Dr. Ernest Addison said inflation is currently above its upper limit, and is driven mostly by food prices. According to him, underlying inflationary pressures are stable which drives the bank to project a return of inflation to medium term target band by the second quarter of next year.

The Governor however expressed fear about the huge financing gap brought about by the expanded deficit saying it could exert pressure on public debt, which could culminate in a long term implication for the economy. He also adds that certain sectors of the economy such as the services sector have been adversely impacted thereby increasing non-performing loans.

The Committee made the announcement after holding its 95th regular meeting from Wednesday to Friday, July, 24, to review developments in the economy.

The Governor also admitted to increased uncertainty in the sector which has been triggered by the second wave of covid-19.

This culminated in a negative spill over, resulting in a weaker growth and negative impact on export, Foreign Direct Investment (FDIs) among others.

The next Monetary Policy Committee (MPC) meeting is scheduled for September 22-25, 2020. The meeting will conclude on Monday,  September 28, 2020 with the announcement of the policy decision.

Source: Business