Implications: Borrowers to pay more interests on loans & banks to have low liquidity
BoG increases policy rate to 29.5%; loans to become more difficult to access
The Bank of Ghana(BoG) has increased its policy rate by 150 basis points to 29.5%.
The rate which is of keen interest to businesses signals the rate at which the Central Bank will lend to commercial banks.
This also means the cost of credit will continue to remain high, affecting household spending and private sector growth.
Average lending rates shot up marginally to 36.64% in February 2023, from 35.58% in December 2022. This is equivalent to a 3.02% interest rate on loans per month.
Announcing the development, the Governor of the Bank of Ghana, Dr Ernest Addison, said the ease in price pressures abroad will likely impact positively on Ghana’s domestic inflation profile going forward.
He said the recent Domestic Debt Exchange Programme (DDEP) has impacted negatively on banks, hence the need for the Central Bank to make necessary adjustments to its regulatory requirements to support the banks.
He, however, said the banks remain strong, sound and stable based on its recent stress test.
He added that the Monetary Policy Committee of the Bank of Ghana will continue to monitor developments within the banking industry to reduce the downside risks to the economy.
He explained that on fiscal policy, the Committee noted that the budget statement for 2023 has set fiscal policy on a consolidation path which is consistent with key elements agreed with the IMF at the Staff Level in December 2022.
“The domestic debt exchange, new revenue measures, and structural fiscal reforms will provide significant reduction of debt service and help create fiscal space”.
Dr. Addison stated that the fiscal outlook is contingent on the financing of the budget and will require the conclusion of the domestic debt exchange programme as well as securing the requisite financing assurances from bilateral donors.
“Indications are that these discussions are proceeding well. Based on the above, it is imperative that Parliament prioritizes the passage of the revenue bills currently before it. Under the Staff Level Agreement with the IMF, the Bank of Ghana and the Ministry of Finance have finalised a Memorandum of Understanding on zero financing to the budget, which will be signed shortly”, he said.
He added that the passage of the relevant revenue bills by Parliament will conclude the required prior actions to advance Ghana’s programme to the IMF Executive Board.