COVID-19 Concerns: Bank of Ghana Reduces Policy Rate to 14.5 %

Governor of Bank of Ghana, Dr. Ernest Addison

Accra, Ghana, March 18, 2020//-The Monetary Policy Committee (MPC) of Bank of Ghana today lowered its policy rate to 14.5 percent from 16% on the account of coronavirus (COVID-19) pandemic which is causing human and economic troubles across the world.

The Chairman of the MPC and Governor of BoG, Dr Ernest Addison made the announcement in a press statement issued in Accra today.

According to the statement, the Bank’s internal assessment shows that the pandemic could impact Ghana through a number of channels. First, the dampened global demand could significantly impact Ghana’s crude oil export earnings with major implications for foreign inflows and tax revenues.

There is also a likelihood of export restrictions from advanced economies and other emerging market economies which could create supply chain shortages for Ghanaian businesses, with significant impact on imports of intermediate and capital goods, as well as consumption goods.

This is expected to negatively affect inputs in the domestic production channels with severe consequences for growth and tax revenues which could become more pronounced by the second or third quarter.

In addition, crude oil prices have declined sharply to historically low levels, and already creating negative shocks on exports, albeit with some offsetting effects from rising gold and cocoa prices.

 In the assessment of the Bank, the negative impact of COVID-19 on exports, imports, taxes, and foreign exchange receipts will culminate in a slowdown in economic activity. GDP growth is forecasted to decline to 5.0 percent in a baseline scenario.

In the worst case scenario, GDP growth estimates could be halved to about 2.5 percent in 2020. These assessments are preliminary as the situation is very fluid and the degree of uncertainty concerning the outbreak is very high. This means that there is a likelihood that these assessments could change rapidly.

The latest inflation reading for February 2020 is estimated at 7.8 percent, unchanged from January 2020. The forecast for inflation is expected to remain within the target band for the next quarter.

Under these circumstances, the Bank of Ghana’s MPC has decided to lower the Monetary Policy Rate by 150 basis points to 14.5 percent, it stated.

The policy rate is the rate at which the central bank lends to the commercial banks in the country. With the reduction of the rate to 14.5%, it implies that all the commercial banks are expected to reduce their interest rates in the country.

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