The Monetary Policy Committee of the Bank of Ghana Monday (31 May) reduced the policy rate to 13.5% amid the coronavirus pandemic.
It was reduced by 100 basis points from 14.5% in March 2021.
In March 2020, the BoG lowered the policy rate by 150 basis points, from 16% to 14.5%. It was the first time since 2019 that the central bank had lowered the policy rate.
The central bank had since then maintained the policy rate at 14.5% six consecutive times.
Announcing the decision of the MPC, Governor of the Central Bank, Dr Ernest Addison, said it took the decision based on the fiscal policy measures contained in the 2021 Budget Statement gearing towards economic growth.
He said, “On growth outlook, the Committee’s view was that projected growth in the extractive industries, steady rollout of the vaccination programme and recovery in industry and the
services sectors should work their way in supporting a faster closure of the output gap in the medium-term.
“Headline inflation eased sharply to within the medium-term target band, driven mainly by lower food prices and base drift effects, a tight monetary policy stance and stable exchange
rate conditions. Since the initial shock to inflation in April 2020, the forecast showed that inflation will be close to the central target by June 2021.
“These forecasts remain broadly unchanged and inflation would remain within the target band in the next quarter. Risks to the inflation outlook appear muted in the near-term, but pressures from mostly rents and transport fares, would require some monitoring to anchor inflation expectations,” Dr Addison added.
Justification to reduce the policy rate
Earlier, analysts at Chapel Hill Denham said, the BoG had justification to cut the Monetary Policy Rate from 14.5% based on the positive inflation reading in April 2021.
Speaking on CNBC Africa, Omotola Abimbola, macro and fixed income analyst, Chapel Hill Denham said, “The Bank of Ghana will actually retain its monetary policy rate at 14.5% and our expectation is mainly despite the fact that the economy although is experiencing much slower or lower inflation pressure, what we believe is that the BoG will remain very cautious…”
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