The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) will begin its 102nd Regular Meetings from today, Wednesday, September 22, 2021 to Friday, September 24, 2021 to review developments in the economy.
The meetings will conclude with a press conference on Monday, September 27, 2021 to announce the decision of the Committee. BoG’s MPC meets every two months to review developments of the economy.
Meanwhile, a Chartered Economist and Lecturer at the Central University College, Mr. Kofi Korle, told The Vaultz News that he expects the MPC to maintain the policy rate. According to him, the outlook of both the domestic and external economies are positive which will motivate the MPC to keep its policy rate.
“As usual the policy rate will depend on the targets set by the Bank against global and domestic economic developments. With a positive domestic outlook emanating from growth in productivity and a relatively low inflation, the policy rate is expected to be maintained. On the external front, the tumbling of major stock markets around the world will reinforce domestic gains because investors will prefer sovereign bonds to stocks”.
Mr. Kofi Korle
Outcome of the previous meetings
The BoG maintained the policy rate at 13.5 percent in its 101st MPC meeting held in July. This was after the MPC shockingly cut the policy rate by 100 basis points from 14.5 percent in May 2021.
The cut in the policy rate in May was the first time the BoG reduced its policy rate in more than a year. The BoG cut its policy rate by 150 basis points in March last year as part of its monetary policy measures to cushion the economy.
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.
However, businesses have always expressed concerns about how the policy rate does not often reflect on the interest rate on loans. The high cost of borrowing continues to be one of the major challenges facing businesses in the country.
Current state of the Banking sector
In its previous meetings, the Bank of Ghana highlighted that the banking sector reflected sustained growth in customer deposits. Total assets, profits and key financial soundness indicators remained healthy in relation to liquidity and solvency.
Nevertheless, the Committee expressed worry about the continued sluggishness in banks’ new lending. The BoG highlighted that the slow growth in lending reflects increased credit risk on account of uncertainties in the business environment. This, the MPC attributed to the impact of the COVID-19 pandemic on the real sector.
Also, BoG mentioned the very high yields offered on government securities due to increased government borrowing as another major risk. This crowding-out effect continues to keep the credit to GDP gap below the long-term trend which is likely to delay the recovery, the BoG warned.
Risk factors
Currently, the economy is on a steady path of a rebound, but the risk of inflationary pressures is heightening. Year-on-year inflation rate stands at 9.7 percent in August 2021, a 0.7 percentage point higher than the rate of 9.0 percent recorded in July 2021.
Meanwhile, one of the reasons why the MPC maintained the policy rate in July was the fact that inflation showed a gradual decline. Even though exchange rate still remains volatile, the MPC may maintain the policy rate at 13.5% to further cushion the economy. Should this happen, it will be in line with the expectations of Fitch Solutions which anticipates the BoG to hold its Monetary Policy Rate at 13.50% till the end of the year.
