BoG maintains Policy Rate at 13.5% again

The Bank of Ghana (BoG) has maintained the Monetary Policy Rate (MPR) for the second time at 13.5% since it last saw a cut to 13.5% in May 2021.

The MPR is the rate at which the central bank lends to commercial banks.

According to the Governor of the Central Bank, Dr Ernest Addison, the Monetary Policy Committee (MPC) kept the MPR unchanged due to balanced risks to inflation and economic growth outlook on both the local and global front.

He said this at a press briefing in Accra on Monday, September 27.

Dr Addison explained that inflation has risen sharply over the last two readings, driven mainly by sustained food price increases, adding that the rise in inflation is expected to decrease with the onset of the harvest season.

Again, while the recovery in global economic activity has continued, although unevenly spread across regions and countries, there remained uncertainties regarding the continued spread of the Delta variant of the Covid-19 virus.

In addition to this were variations in policy stimulus programmes and low access to vaccines in emerging market and frontier economies which could weaken near-term growth prospects.

Besides the Covid-19 policy variations in stimulus programmes, the global inflationary pressures were expected to be strong in the near term.

The MPC noted that the factors driving headline inflation are temporary, as there is still a sizeable spare capacity in the global economy.

Also, the slackness in labour market conditions would restrain wage growth and prevent significant and sustained pickup in underlying inflation.

Nonetheless, the MPC expects inflation to return to its target as the spare capacity erodes over the medium term.

On the domestic front, the MPC believed that growth continued to recover from the impact of the pandemic, with high-frequency economic indicators pointing to continued economic activity, even though below pre-pandemic levels.

“Although consumer confidence picked up, weakening business sentiments, stemming from supply disruptions, is adversely impacting input costs, driving down short-term company prospects. While credit to the private sector saw a marginal pickup, the trends remain below expectations, largely on account of pandemic-related risk aversion,” the MPC said.

However, it stated that the Covid-19 related macro-prudential measures put in place by the Bank of Ghana would be maintained to support a full recovery in economic activity.

The MPC observed that the deficit’s increased domestic financing (driven by high-yielding government paper, primarily held by banks) was crowding out credit to the private sector.

It is also expected that the rising interest rates in advanced economies on account of tapering may pose some risks.

More so, the latest data has suggested that fiscal consolidation efforts appeared to be on track, but with some inherent risks associated with wage settlements and energy sector payments, amid low revenue mobilisation.

“Given these considerations, and the fairly balanced risks to inflation and growth in the outlook, the Committee decided to keep the policy rate at 13.5%,” Dr Addison said.

Brief background

Prior to the reduction of the MPR to 13.5 in May, the central bank had held its lending rate to commercial banks for six consecutive times at 14.5%.

The 100 basis point in the policy rate reduction was to stimulate growth as the country made its way out of the woods of the Covid-19 pandemic.

Nonetheless, a report by the Bank of Ghana disclosed that while the BoG’s lending rate stood at 13.5%, many banks had their lending rate above the average of 20%.

As of the end of July 2021, borrowers were paying as much as 24.89% interest on loans instead of the average rate of 20%.

The situation was such that Agricultural Development Bank Limited was giving out loans at 24.89%, being the highest, followed by Absa Bank Ghana Limited, whose interest rate stood at 23.59%.

Other banks whose lending rate outstrip the 20% are Societe General Ghana PLC, 23.61%, Standard Chartered Bank, 20.82% %,  GCB Bank Limited, 22.80, and  FBNBank (Ghana) Limited, 22.25%.

So far, eight banks have their lending rate less than the 20%.

They are CalBank PLC, 15.97%, Guaranty Trust Bank (Ghana) Limited, 16.97%, Bank of Africa Ghana Limited, 17.19%, and Access Bank Ghana Plc, 17.77%.

The rest are OmniBSIC Bank Ghana Limited, 17.95%, Ecobank Ghana Limited, 18.41%, United Bank for Africa (Ghana) Limited, 19.05%, and Zenith Bank (Ghana) Limited, 19.45%.

President Akufo-Addo charges BoG Board to ensure compliance

The information was provided by BoG amid a call by President Nana Akufo-Addo, for an investigation into the high interest rates in Ghana.

He lamented the situation whereby BoG had kept its policy rate at 13.5%, but many commercial banks were charging above 21%.

“It’s surely not right that the policy rate stands at 13.5% while commercial banks rate stands at 21% and above, this is a gap we have to break if we are to realise the vision of a Ghanaian economy that is globally competitive,” the president told the governing board.

“I urge the new governing board of the bank to interrogate the issue of high-interest rates in the country and how the problem should be addressed to enhance the competitiveness of the private sector,” he charged them.

The president made those comments when he inaugurated the reconstituted board of the central bank at the Jubilee House on Friday, August 20.

READ ALSO: Majority Of Banks Exceed 20% Average Lending Rate