Bank of Ghana has for the second time this year has maintained its monetary policy rate at 14.5%. The announcement comes after BoG held a three day (from September 22, 2020, to September 25, 2020) meeting to evaluate Ghana’s economy and the necessary steps for the formulation of monetary policies.
BoG’s Governor, Dr. Ernest Addison explained that the reason for the maintained 14.5% policy rate was due to indications of economic activities returning to normal. He said,
“Consumers seem to be responding to the gradual lifting of restrictions which provides some scope for meaningful economic activities. Business confidence also increased, but yet to reach pre-lockdown levels.”
He further added that
“About 95 percent 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.”
Given the improvements in Ghana’s economy following the disruptive force of COVID-19, Dr. Ernest Addison praised the monetary and fiscal policy undertaken by BoG which supported the nation’s economy during the deadly shock of the global outbreak.
“Monetary and fiscal policies have been supportive providing the necessary underpinnings for the economy to withstand the negative output shock arising from the pandemic. Under these circumstances, the Committee’s view is that the risks to the immediate outlook for inflation and growth are broadly balanced and decided to keep the policy rate unchanged at 14.5 percent,”
Inflation & Growth
Dr. Addison mentioned that headline inflation, which peaked at 11.4%, has dropped to 10.5% slightly above the upper band target. However, he is optimistic that inflation would return to the medium-term target by the second quarter of 2021 due to the improved economic outlook.
“Leading indicators of economic activity point to a recovery, a sustained level in consumer and business confidence, broad-based growth in the indicators of the CIEA are all supportive of positive growth conditions in the outlook,”
Following the above statement, Dr. Ernest Addison said economic growth in 2020 would be between 2.0% and 2.5.
The 95th MPC Press Conference
During the 95th MPC Press Conference in July, BoG kept its monetary policy unchanged at 14.5% attributing its decision to the disruptions in the economy triggered largely by the global wave of the coronavirus. The policy rate was maintained to boost economic activity by making it cheaper to borrow and provide more purchasing power for Ghanaians in the era of COVID-19.
Dr. Ernest Addison made it known that the monetary and fiscal policy measures undertaken by Bank of Ghana have improved liquidity in the banking system, preserved capital buffers, and provided relief to customers heavily impacted by the COVID-19 pandemic.
Certainly, the policy measures are working effectively, thus BoG’s decision to maintain the policy rate. Dr. Ernest Addison however cautioned that uncertainties in the external economic environment will be monitored closely to safeguard international capital market access.