In its quest to foster economic growth and ensure financial stability in response to developments on the local and external front, the Monetary Policy Committee, MPC, of the Bank of Ghana, BoG, at the 100th Monetary Policy Committee Meeting, has for the first time since March 2020 reduced the policy rate to 13.5 percent.
This is a 100 basis points reduction in the rate which had been kept unchanged at 14.5% percent for at least six consecutive times.
The rate had been maintained in May, July, September and November of 2020, and January and March of 2021, following the impact of COVID-19 on the economy.
The policy rate determines the rate at which the central bank lends to commercial banks, which also determines how much interest people and businesses pay on their loans.
Communicating the decision on the new policy rate on May 31, 2021, after concluding its meetings on May 28, 2021, Governor of the Central Bank, Dr. Ernest Addison, said the decision was informed by the improvement in macroeconomic conditions on the global front and the local front.
With a reduction in the policy rate, lending rates by commercial banks to businesses is expected to fall in line with the new policy rate.
Governor of the Central bank, Dr. Ernest Addison justified the lowering of the Monetary Policy Rate at a media briefing in Accra.
“We see progress in the economy and in inflation coming down and we have brought the rate down to signal that there is some progress. The last time we did that was in early 2020. Soon after that we got the COVID-19 shock so the policy committee could not take any other decisions but to not change the policy rate. Now to complicate matters, this was also an election year. So, we were not allowed to reduce the policy rate within that contest.
And so the prudent thing to do was to keep the policy rate where it was. In 2021, the whole risk associated with the election is behind us. If we look at the numbers, you can see that the global environment has improved some what. In the first 2, 3 months of the year, we have seen non-residents come back to invest in the bonds market, so we have attracted some non- residents . Then in April we have had this big drop in inflation. I think all the arguments are there. So, the central bank will not wait for another complication which will stop you from resuming your policy rate adjustment in line with the improvement that we have seen,” he added.
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