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Bank of Ghana keeps policy rate at 14.5%

Dr Ernest Addison

The monetary policy committee (MPC) of the Bank of Ghana (BoG) has kept the policy rate unchanged at 14.5%.

Speaking at a press conference in Accra on Monday, Ernest Addison, Governor of the Bank of Ghana said: “Underlying inflation and inflation expectation are easing. The latest staff forecast shows improved outlook on purchase since the last MPC, and in the absence of unanticipated shocks, inflation should return to the medium-term target by the second quarter of 2021.”

Good prospects

He added: “In sum, the drivers of economic growth are returning to normal, with prospects for a good recovery.

“Monetary and fiscal policies have been supportive, providing the necessary underpinnings for the economy to withstand the negative output shock arising from the COVID-19 pandemic.

“However, this has come at the cost of moving away from the consolidation path and could pose a risk to long term microeconomic stability if decisive measures are not taking to define a feasible fiscal adjustment to stabilise it.”

Dr Addison said: “Under the circumstances, the committee’s view is the risk to the immediate outlook for inflation and growth are broadly balanced and [we] decided to keep the policy rate unchanged at 14.5%.”

In March 2020, the Bank of Ghana lowered the policy rate by 150 basis points, from 16% to 14.5%. It was the first time since 2019 that the central bank lowered the policy rate.

High confidence level

The Governor of the central bank said, the contraction in the second quarter notwithstanding, high-frequency data available to the Bank of Ghana shows green shoots of recovery in economic activity.

Surveys conducted by the Bank of Ghana in August show that consumer confidence is bouncing back strongly and that it is currently above pre-lockdown levels.

Dr Addison said: “Consumers seem to be responding to the gradual lifting of restrictions – providing some scope for meaningful economic activities. Business confidence also increased, but is yet to reach pre-lockdown levels.

Strong optimism

“About 95% of businesses surveyed showed strong optimism, reflecting the improving macroeconomic conditions, stability in the exchange rate, lower input prices, moderation in lending rates, and positive industry prospects.”

He said the real composite index of economic activity (CIEA) grew by 3.6% in July 2020, compared with a contraction of 10.6% in May.

“Consumer spending, industrial consumption of electricity and construction activities have all reached pre-lockdown levels, while tourist arrivals and port harbour activity are gradually edging upwards,” Dr Addison said.

“In contrast, imports, exports and private sector contributions to social security remain below pre-lockdown levels.”

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