Bank of Ghana Cuts Key Policy Rate to 16%

Governor of Bank of Ghana, Dr. Ernest Addison

Accra, Ghana, January 28, 2019//-The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has reduced its policy rate from 17% to 16%, citing the decline in inflation, immediate risks to the disinflation path, among others.

The Chairman of the MPC and Governor of BoG, Dr Ernest Addison who made the announcement at a press briefing in Accra today, noted that inflation has steadily declined from 15.4 percent at the end of 2016, to 11.8 percent in 2017 and further down to 9.4 percent in 2018, supported in large part by non-food inflation.

The bank’s latest forecast shows that inflation will remain within the target band of 8±2 percent over the forecast horizon, barring any unanticipated shocks, he added.

“The committee noted that immediate risks to the disinflation path are well contained, and the current conditions provide scope to translate some of the gains in the macro stability to the economy. Under the circumstances, the Committee decided to reduce the policy rate by 100 basis points to 16 percent”, Dr Addison stated.

The policy rate is the rate at which the central bank lends to the commercial banks in the country. Pegging the rate at 16% implies that all the commercial banks are expected to reduce their interest rates in the country.

The disinflation process continued in 2018. Headline inflation trended downwards from 11.8 percent in December 2017 to 9.4 percent in December 2018, remaining broadly anchored within the medium-term target band of 8±2 percent.

“This has been supported by the relatively tight monetary policy stance maintained throughout the year. Underlying inflationary pressures are similarly well-contained as all the Bank’s measures of core inflation point to a general easing, and further underpinned by well-anchored inflation expectations of both consumers and businesses”.

However, a renowned economist and Professor at the University of Cape Coast (UCC), John Gatsi, said the reduction in the policy rate may not reflect on the base rates of the 23 commercial banks in the country.

He premised his argument on the fact that the policy rate has been trended downwards for more than three years but the banks are yet to reduce their base rates accordingly.

African Eye Report

 

 

 

 

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