The Monetary Policy Committee (MPC) of the Bank of Ghana, has maintained the policy rate at 14.5 percent.
This is the first time the rate has been kept unchanged after it was reduced by 150 basis points early this year.
The MPC, at the time said the decision was among other things influenced by the need to ease the impact of the COVID-19 pandemic on businesses.
Speaking at a press briefing in Accra, the Governor of the Bank of Ghana, Dr. Ernest Addison, explained that the decision to keep the policy rate unchanged, is to control inflation from going out of gear.
“The policy rate remains unchanged at 14.5 percent. Additionally, the COVID-19 pandemic has put a severe strain on the budget manifesting in petroleum revenue shortfalls as a result of a plunge in crude oil prices and shortfalls in import duties, other tax revenues and non-tax revenues. Preliminary assessment also shows that the financing gap that was estimated at the time of applying for the International Monetary Fund Rapid Credit Facility (RCF) in March, has widened significantly resulting in a large residual financing gap. Current market conditions in the wake of the pandemic will not allow the financing of the gap from the domestic capital markets without significantly increasing interest rates,” he said.
The policy rate, which is the rate at which the central bank lends to commercial banks, and is also used by banks to calculate their base rates, was kept unchanged at 16 percent for at least five consecutive times prior to its reduction to 14.5%.
Earlier this month, some industry players appealed for a further reduction of the policy rate to help bring interest rates down and reduce the cost of borrowing.
With the impact of the coronavirus since it’s outbreak in December, 2019, having a serious impact on the global economy, policymakers have been looking for ways to respond by putting in place measures which come with difficult economic trade-offs.
Already, the Ghana Association of Bankers announced a cut in its benchmark interest rate by 200 basis points to mitigate the economic impact of COVID-19 on businesses and individuals.
The 200 basis points reduction in interest rate translates to a 2 percent reduction on bank loans.
Reduce policy rate to inject liquidity into financial sector – Economist to BoG
Prior to the Monetary Policy Committee’s (MPC) announcement of its policy rate decision today, Friday, May 14, an Economist, Dr. Lord Mensah, asked for a further reduction of the policy rate to mitigate the impact of the COVID-19 pandemic on businesses and individuals.
He explains that reducing the policy rate help inject liquidity into the financial sector.