The Monetary Policy Committee of the Bank of Ghana (BoG) has kept the policy rate, the rate at which the central bank lends to commercial banks at 13.5 percent.
The decision to maintain the policy rate is as a result of a positive macroeconomic outlook, while placing particular emphasis on the easing of inflationary pressures, projected to remain within the medium-term target band. The BoG also highlighted a well-performing banking sector.
Based on the Committee’s overall assessment, it indicated that “the risks to inflation and growth were broadly balanced” thus, informing the policy response.
This is based on a press statement released by the MPC on Monday, July 26, 2021.
Mimicking a positive global economic rebound, the domestic economy is expected to experience a stronger recovery from the pandemic as evidenced by an estimated GDP of 3.1 percent in the first quarter of 2021, the report indicated.
Beyond the first quarter, “the Bank’s updated Composite Index of Economic Activity (CIEA) recorded a strong annual growth of 33.1 percent in May 2021, relative to the contraction of 10.2 percent recorded in the corresponding period of 2020.
“The latest confidence surveys by the Bank of Ghana reflected mixed sentiments. Consumer sentiments softened on the back of a variety of factors including the implementation of the recently announced revenue measures contained in the 2021 Budget, while business sentiments remained somewhat broadly unchanged due to expectations of improvement in company growth prospects.”
With regards to inflation, the MPC indicated that “headline inflation has eased sharply and reverted within the medium-term target band, driven mainly by the tight monetary policy stance and some base drift effects. The latest forecast remains broadly unchanged with inflation projected to remain within band and around the central path in the forecast horizon barring any upside risks from fiscal pressures.”
Furthermore, the performance of the banking sector also improved, reflecting sustained growth in customer deposits, total assets, and profits and key financial soundness indicators remained healthy in terms of liquidity and solvency, the report noted.
“Based on macro-prudential risk assessments, the Committee expects the banking sector to withstand mild to moderate credit risk shocks although a new wave of the pandemic in Ghana could further elevate credit risks and would require close monitoring of banks’ capital and liquidity buffers.”
According to the report, for the first half of the year, new advances totalled GHS16.0 billion, marginally above the GHS15.8 billion for same period in 2020. Also, net restructured loans by banks to cushion customers severely impacted by the pandemic stood at GHS3.66 billion as at June 2021, representing some 7.7 percent of industry loan portfolio.
Albeit, Non-Performing Loans (NPL) ratio inched up to 17.0 percent in June 2021 from 15.7 percent in June 2020. This is as a result of the pandemic-induced repayment challenges in some of the badly affected sectors as well as some bank-specific loan recovery challenges, the report highlighted.
These notwithstanding, the Committee observed some worrying trends, highlighting “the continued sluggishness in new lending by banks which could undermine the growth momentum.” It also noted the government’s failure to keep to its fiscal consolidation path as well as rising public debt levels.
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