The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has maintained the policy rate at 14.5 per cent.
The decision to maintain the rate was due to the current uncertainties in the financial sector due to the COVID-19 pandemic and its impact on economic activities.
This was confirmed in a document released by the Bank of Ghana on Monday, July 27, 2020, after its MPC meeting on Wednesday, July 22, 2020, through to Friday, July 24, 2020.
The policy rate is of high interest to businesses as it is the basis on which the BoG lends to commercial banks. This rate subsequently helps banks determine the interest rate placed on loans.
In March 2020, the MPC arrived at the decision to reduce the rate by 150 basis points from 16 per cent to 14.5 per cent. The figure was subsequently maintained at the end of the 94th Monetary Policy Committee in May 2020.
The decision to maintain the policy rate became necessary to ensure stability in price and further help give businesses a headrest due to varied causes of the Coronavirus pandemic.
After a briefing on the varied aspects of the economy, highlighting on GDP, inflation among others from the economic threats posed by the pandemic, the BoG’s MPC arrived at maintaining the policy rate.
“The Committee was of the view that the current extraordinary circumstances, with a widened budget deficit and a residual financing gap, would require some monetary restraint to preserve the anchors of macroeconomic stability. In the circumstances, the Committee decided to maintain the policy rate at 14.5 per cent.”
Additionally, the Monetary Policy Committee admitted to increased uncertainty in the sector which has been triggered by the second wave of COVID-19.
This culminated in a negative spillover, resulting in weaker growth and negative impact on export, Foreign Direct Investment (FDIs) among others.
On Bank Assets
Regarding the assets of Banks, the Committee noted that the total asset base of the banking industry continues to remain strong, expanding by 23.2 per cent in year-on-year terms to GH¢139 billion at end-June 2020.
Adding that data shows that recoveries from loans, a significant increase in deposits growth, and borrowing from parent companies have funded banks investments, while these factors, in addition to regulatory reliefs provided earlier in the year by the Bank of Ghana, have supported lending to the rest of the economy.
There are indications of a gradual rebound in credit growth in response to the previously announced policy measures aimed at supporting credit extension and loan restructuring in response to the pandemic’s impact on local businesses.
Ahead of the MPC meeting, an economist, Dr. Lord Mensah, had earlier said that he did not foresee the Bank of Ghana (BoG) increasing the policy rate anytime soon.
According to him, the Central Bank was likely to either reduce or maintain the policy rate to further cushion businesses as they are already struggling due to the adverse impact of the coronavirus.
Next MPC Meeting
Meanwhile, the next MPC meeting is scheduled to take place from Tuesday, September 22, 2020, to Friday, September 25, 2020. After the meeting, the final report will be made available on Monday, September 28, 2020, with the announcement of the policy decision.
