Ghana Holds Key Policy Rate at 14.5 % Despite Calls for Reduction  

Governor of Bank of Ghana, Dr. Ernest Addison

Accra, Ghana, September 28, 2020//-The Monetary Policy Committee (MPC) of Bank of Ghana (BoG) today maintained its policy rate at 14.5 % despite calls for reduction by analysts.

This the second time of holding the rate after it was lowered from 16% on the account of coronavirus (COVID-19) pandemic on March 18, 2020.

Analysts had predicted that the MPC could reduce the policy rate because of the worsening purchasing power of Ghanaians.

But the Chairman of the MPC and Governor of BoG, Dr Ernest Addison told journalists via online press conference, said that, “the drivers of economic growth are returning to normal with prospects for a good recovery.

Monetary and fiscal policies have been supportive, providing the necessary underpinnings for the economy to withstand the negative output shock arising from the pandemic.

However, this has come at the cost of moving away from the consolidation path and could pose a risk to long-term macroeconomic stability if decisive measures are not taken to define a feasible fiscal adjustment to stabilise debt”.

Under the circumstances, the Committee’s view is that risks to the immediate outlook for inflation and growth are broadly balanced and decided to keep the policy rate unchanged at 14.5 percent, he said.

On the real economy, despite the contraction in the second quarter, the indication is for improved growth outturn in the third and fourth quarters. Leading indicators of economic activity point to a recovery, according to Dr Addison.

A sustained level in consumer and business confidence, broad-based growth in the indicators of the CIEA are all supportive of positive growth conditions in the outlook. Following from the above, it is estimated that growth in 2020 will be between 2.0 and 2.5 percent.

Fiscal policy has been a source of considerable stimulus, driven by exceptional expenditures directed towards goods & services, capital expenditures, COVID-related spending, and in the energy sector.

As at July 2020, the budget deficit was higher than programmed. Indications from banking data point to a faster budgetary execution in August relative to the annual target of 11.4 percent of GDP, supported by exceptional domestic and foreign financing sources.

Headline inflation, after peaking at 11.4 percent has eased to 10.5 percent, slightly above the upper band target. With the easing of the COVID-related food price pressures and continued stability in the exchange rate, a gradual and steady return of inflation to target is anticipated over the horizon. Underlying inflation and inflation expectations are easing.

The latest staff forecast shows a somewhat improved outlook compared to the last MPC and in the absence of unanticipated shocks, inflation should return to the medium-term target by the second quarter of 2021.

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

 African Eye Report



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