In its quest to review developments in the economy and take the necessary steps to ensure financial and economic stability, the Monetary Policy Committee of the Bank of Ghana has maintained the policy rate at 14.5 percent.
This is the fifth time the Central Bank has maintained the policy rate at 14.5 percent.
In a statement issued by the Bank of Ghana, the Governor of the Central bank, Dr. Ernest Addison, attributed the decision to the balance of risks to inflation and steady growth of the economy.
“Risks to inflation in the near-term are broadly contained, but short to medium-term risks emanating from the fiscal expansion and rising crude oil prices are emerging. Under these circumstances, the Committee has decided to keep the policy rate at 14.5 percent,” he said.
Touching on Inflation, a key driver of the policy rate, Dr. Addison further explained that, “Headline inflation, while on steady decline in the early months of the last quarter of 2020, jumped in December to 10.4 percent, outside the target band of 8±2 percent, driven by food prices. However, the Bank projects headline inflation to return to target in the second quarter of 2021.”
The Governor however expressed fear about the renewed threat of the second-wave which could slow down economic recovery.
“In the domestic economy, growth has picked up since the sharp contraction in the second quarter. All the high-frequency indicators of economic activity have rebounded, consumer and business confidence levels are back at pre-lockdown levels, and there are indications of steady growth in private sector credit. However, the renewed threat from the second-wave of the pandemic has again heightened uncertainty and could hamper the recovery process in the near term,” he added.
The Monetary Policy Rate is of keen interest to businesses, as it determines the rate at which the BoG lends to commercial banks, and subsequently influences interest rate on loans.
The unchanged policy rate means cost of loans will remain same at least for the next two and half months, unless there is a change in some economic factors.
Earlier Monetary Policy Rates
In January this year, the Monetary Policy Committee of the Bank of Ghana voted to maintain the policy rate at 16 percent. This was the fifth time the rate had been maintained at 16 percent.
However, in March this year, the Monetary Policy Committee (MPC) of the Bank of Ghana, reduced the policy rate to 14.5% after it was kept unchanged at 16 percent for at least five consecutive times.
The rate was maintained in May, July, September and November 2020, following the impact of COVID-19 on the economy.
The decision according to the Governor of the Central bank, Dr. Ernest Addison, was based on uncertainties in the economy caused largely by the Covid-19 pandemic.