The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) will begin its regular MPC meetings from today, Wednesday, July 21, 2021, through to Friday, July 23, 2021. This is the fourth of the Committee’s meetings this year, held every two months to review developments in the economy. Overall, this will be the 101^st of such meetings since the committee was inaugurated.

The meetings will be crowned with a press briefing on Monday, July 26, 2021 to announce its decision on the monetary rate, whether it should be maintained or changed to reflect the current economic conditions in the country.

The Monetary Policy Rate is of keen interest to businesses, as it determines the rate at which the BoG lends to commercial banks, and also subsequently, influences the interest rate on loans offered to customers.

Already, businesses have shared their complaints about how the policy rate does not often reflect on the interest rate on loans as expected.

Recap of previous MPC Meeting

At the 100^th Meetings in May 2021, the Monetary Policy Committee shockingly cut the policy rate by 100 basis points to 13.5 percent from 14.5 percent. The cut of the policy rate in May was the first time the Bank has reduced its policy rate after a 150 base point reduction in March last year as part of its monetary policy measures to cushion the economy.

Meanwhile, the Bank of Ghana cited the uptick of economic activities, evidenced by the Bank’s high frequency economic indicators as one of the reasons for the policy rate cut.

Nevertheless, the Bank indicated that consumer and business confidence reduced marginally in April as a result of the introduction of the new taxes aimed at boosting government revenues. The BoG cited the instability in power supply which coincided with the survey period as one of the factors responsible for the reduced confidence.

The Committee, however, cited wage settlements, energy IPP payments, the potential for arrears build-up, the potential for scaled-up expenditures associated with COVID-19 waves and mass vaccination efforts as some potential risks to the fiscal outlook.

Current state of the Banking sector

According to the Bank of Ghana, Asset growth remained strong on the back of strong deposit and investment growth. However, credit growth was sluggish due to the lingering effect of low credit demand and supply conditions triggered by the COVID-19 pandemic. Also, the BoG noted that the financial soundness indicators continue to reflect a well-capitalised and liquid sector.

Nevertheless, profitability was moderately affected by the pandemic but effective cost control measures ensured that the impact of the pandemic on the bottom line was somewhat contained, the BoG said. More importantly, BoG indicated that asset quality remains a risk in the outlook.

However, the BOG cautioned that pressures from mostly rents and transport fares, would require some monitoring to anchor inflation expectations. Currently, inflation stands at 7.8% as of End-June, 2021. With the level of economic activity picking up, coupled with somehow low inflationary pressures, even though exchange rate still remains volatile, the MPC may maintain the policy rate at 13.5% to further cushion the economy.