BoG maintains monetary policy rate at 14.5%
Bank of Ghana’s Monetary Policy Committee has maintained its policy rate at 14.5%.
The central bank has explained that maintaining the policy rate was necessary to ensure price stability and also help cushion various businesses amidst the COVID-19 pandemic.
“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,”the Governor of the central bank, Dr Ernest Addison, stated, at the 95th MPC conference.
In May, the Central Bank kept its policy rate unchanged at 14.5% following a sudden rise in inflation.
This follows an earlier March 2020 meeting which saw a 150-basis-point reduction in the monetary policy rate to 14.5%, with some commercial banks impressed upon to further slash on lending rates to ease access to credit.
Three months later amid a COVID-19 scourge, which has crippled businesses and biting hard on the economy, the bank holds it earlier view.
“In the circumstances, the committee decided to maintain the policy rate at 14.5%,” the governor said.
The policy rate is important to most businesses, as it determines the rate at which the central bank can lend to commercial banks and also influence the interest rate on loans.
With no end in sight for COVID-19, Dr. Addison believes the decision to maintain the policy rate is an incentive to pick businesses out of the ashes of an economic downturn.
“The uncertainty derives from the possibility of a prolonged downturn as countries begin to experience the second wave of COVID-19 infections.
“Consequently, the fiscal and monetary stimulus packages will have to be continued over a much longer horizon, which could lead to a negative spillover to emerging and frontier markets with consequences for weaker growth and instability,” he noted.
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, the 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 2021.
Dr. Addison, however, expressed fears 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 added that certain sectors of the economy such as the services sector have been adversely impacted thereby increasing non-performing loans.
In March this year, the MPC reduced the rate by 150 basis points from 16% to 14.5%, and the figure was maintained in May 2020.
The next Monetary Policy Committee (MPC) meeting is scheduled for September 22-25, 2020.
The meeting would then conclude on Monday, September 28, 2020, with the announcement of the policy decision.
Below is the full speech