The Monetary Policy Committee of the Bank of Ghana has maintained the policy rate for the 4th consecutive time this year at 14.5 percent after a similar decision in May, July and September 2020.
The rate is of keen interest to businesses, as it signals the rate at which the Central Bank will lend to commercial banks, and will subsequently influence average lending rates on loans to individuals and businesses.
Speaking at the 97th MPC Press Conference, Governor of the Bank of Ghana Dr. Ernest Addison said the decision to maintain the policy rate for the 4th consecutive time at 14.5 percent, was informed by the improvement in macroeconomic conditions on the global front and the local front.
“The Committee noted that macroeconomic conditions have generally improved relative to conditions at the time of the last MPC meeting in September 2020. Global conditions continue to be supportive, domestic inflation is easing, growth prospects are improving, crude oil prices have stabilized, monetary aggregates have expanded but with minimal impact on inflation, the current account deficit is stable, remittances inflow has remained firm, the exchange rate has been stable and reserve buffers continue to remain strong. The key risks are the evolution of the budget deficit and the financing needs to support budget implementation and the uncertainty surrounding the pandemic. Under the circumstances, the Committee has decided to maintain the policy rate at 14.5 percent.”
Responding to the reason why the policy rate could not be reduced further, Governor of the Central bank, Dr. Ernest Addison attributed it to the need to attract investors with high interest rates to lend money to government as it deals with the country’s high financing needs.
“It is important that the budget is fully financed. To keep the budget fully financed you need an interest rate which is high enough to allow investors including domestic investors to be interested in buying government bonds. That is the context in which we find ourselves, that we have a large financing need for the budget. This is not the time to be reducing policy rate to create a disincentive for getting the budget fully financed, because that could create serious complications for the economy. And I think that, that is a very strong basis for why the policy rate has not been adjusted downwards.”
Monetary Policy Rate maintained for 4th consecutive time
In March this year, the seven-member Monetary Policy Committee which meets bi-monthly over a three to four-day period to assess current economic conditions and the country’s inflation outlook, reduced the policy rate by 150 basis points from 16 percent to 14.5 percent.
The figure has since been maintained in May, July, September and November 2020.
