The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) yesterday approved for the sixth time in less than 18 months to reduce policy rate, from 18 to 17 percent, after April’s inflation dropped to single-digit.
Relatively, the one precent reduction brought to 8.5 percent the total reduction since January 2017, when the policy rate stood at 25.5 percent.
Dr. Ernest Addision, Governor of BoG at a press briefing said the 17 percent policy rate was a decision taken by the committee as result of favourable inflation conditions which have stabilized price of commodity.
“Both headline and core inflation have broadly trended downward, indicating easing underlying inflation pressures. Additionally, weighted inflation expectations across the sectors have continued to decline. Headline inflation trended within the medium-term target of 8±2 percent and the forecast points to sustained disinflation over the horizon, barring unanticipated shocks.
“Under the circumstances, the Committee noted that the risks to the inflation outlook are subdued in the forecast horizon. While global and domestic developments do not yet pose a threat to inflation in the near-term, recent changes in global financing conditions and its impact on emerging market asset classes require some vigilance.
“Consequently, the Committee decided to reduce the monetary policy rate by 100 basis points to 17 percent. The Committee, however, stands ready to take the appropriate policy measures to address any potential threats to the disinflation path,”
the central Bank Governor revealed.
According to the Governor, rebounding of growth is expected to be supported by the favourable external environment and policy initiatives introduced in the system by government.
Since April this year, inflation declined to 9.6 percent, the first time in more than five years that the consumer price index broke into the single digit band. The figure also measured favourably to the bank’s own target of achieving 8±2 percent inflation by 2019.
The improved inflation performance, and the lower push from cost of items or services that could force inflation to rise, gave the bank another reason to reduce the policy rate to 17 percent – which is the lowest since November, 2018.
The decision to reduce its policy rate should come as a boost to the newly-created Ghana Reference Rate, which has become the benchmark by which banks peg their interest on credit to their customers.
Despite the fact that the bank’s own survey of economic activity suggests a slower pace of growth in the first quarter of 2018, BoG is hopeful the policy rate reduction could trigger some ease in cost of credit and force growth to rebound over the medium-term.
This Dr Addison maintained that the business sector remained favourable due to the cedi stability, which has uncharacteristically appreciated, by less than one percent, against the dollar since January, reduction in interest rates and the continued disinflation process.
He said, even though the private sector credit growth remaining below expectation, the bank has picked up signals of recovery evidenced by increased new loan advances and easing credit conditions.
“There is a need to strengthen revenue mobilisation efforts to help finance government priority programmes and increase the pace of arrears clearance, to mitigate the spillover effects on the financial sector,” the Governor said.
Fiscal operations, the Governor said, pointed continued consolidation in the first quarter, in spite of the fact, revenue concerns remained.
The policy rate is the rate at which the central bank lends to commercial banks for onward lending to their customers.
Source:the republic news online.com/Felix Engsalige Nyaaba