Accra, Ghana//-The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) today kept its policy rate unchanged due to many factors including the rollout of vaccination programme in the West African country.
The policy rate is the rate at which the central bank does overnight lending to the commercial banks in the country. Keeping the rate at 14.5% implies that all the commercial banks are expected to keep their interest rates accordingly.
Announcing the decision in press statement issued in Accra today, the Governor and Chairman of the MPC, Dr Ernest Addison said: “The sustained policy support to moderate the impact of the pandemic and the massive rollout of the COVID-19 vaccination programme in advanced economies have significantly improved global growth prospects for 2021 and the medium-term outlook.
With the improved outlook, commodity markets, especially crude oil prices, are gradually turning around and cost pressures have begun to emerge due to resurgence in demand coupled with temporary supply constraints.
However, inflation remains generally subdued due to the sizeable spare capacity and labour market slack in advanced economies. Near-term global financing conditions remain favourable and likely to benefit currencies in emerging market and frontier economies, including Ghana.
The strong fiscal stimulus in the United States could trigger a rise in bond yields, leading to potential capital flow reversals from emerging markets.
However, the Committee is of the view that the Fed’s indication 8 to keep interest rates at low levels will support favourable financing conditions in the near term. 22, according to him.
On the domestic front, the Bank’s high frequency indicators have continued to pick up, reflecting the rebound in economic activity.
Although business and consumer sentiments softened on the back of the surge in COVID cases in the early months of 2021, the rollout of the vaccination programme has increased optimism about the future and will further add a boost to the anticipated recovery in growth.
Dr Addison noted: “Even though private sector credit growth remains generally weak due to the pandemic, the rebound of input supplies evidenced by increased non-oil imports should support the ongoing rebound in economic activity”.
The banking sector remains well-positioned to continue with the core objective of financial intermediation to support the ongoing recovery process.
Banks are projected to sustain the strong performance under mild to moderate stress conditions. While some of the regulatory reliefs extended to the industry have helped banks’ continued support of the real sector, close monitoring and heightened supervision will be required to address potential vulnerabilities in the industry, as the pandemic lingers.
The 2021 budget has set fiscal policy on an adjustment path albeit slower than originally anticipated. The adjustment for 2021 is expected to be driven, mainly by revenue-enhancing measures, and to a lesser extent, expenditure rationalization due to the need to continue the stimulus programmes.
The MPC assessed achieving the enhanced revenue targets and the heavy reliance on the domestic market as the main risks to the budget.
After declining in January 2021, headline inflation rose in February slightly above the upper band of the medium-term target, driven mainly by non-food prices.
The Bank’s forecast, however, remain broadly unchanged with headline inflation expected to return to the target band in the second quarter of 2021.
Risks to inflation in the near-term are broadly balanced, but there are emerging short-term 9 pressures emanating from the rising crude oil prices and the direct and secondary price effects of the revenue measures announced in the 2021 budget. Monetary policy would need to remain vigilant to monitor these risks, he said.
African Eye Report
