BoG makes a pause on policy rate hikes; maintains existing 19% prime rate
The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has maintained its monetary policy rate at 19%.
This is despite the surge in headline inflation to the current rate of 29.8% at end-June 2022 – the highest record rate in the last 19 years.
The MPC’s decision to maintain the policy rate was announced by Governor of the Bank of Ghana, Dr Ernest Addison on Monday, July 25, 2022.
With no increment in the policy rate, lending rates by commercial banks to businesses are expected to remain the same and in line with the prevailing 19% policy rate.
The monetary policy rate is the interest rate at which the Central Banks makes loans to commercial banks and serves as the benchmark interest rates for onward loans to businesses in the country.
Following the Bank’s 107th Monetary Policy Committee (MPC) meeting, the Governor attributed the Committee’s decision to maintain the policy rate to witnessed deceleration of the inflation rate in the past few months and the expectation of a strong macroeconomic framework that will underpin an agreed IMF programme which will present a strong and coordinated monetary and fiscal framework which will anchor price stability and prevent further increments in inflation.
Another reason for the MPC’s decision is to pause and monitor the effect of the previous policy rate hike measures taken by the Central Bank and its effect on the markets and the general economy.
“The Bank of Ghana has responded decisively with its policy tools over the last few months increasing the policy rate by a cumulative 550 basis points since November 2021 and tightened liquidity conditions. The Committee also noted the deceleration in the rate of increase in inflation in the last reading.
“The Committee expects that the macroeconomic framework that will underpin an agreed IMF supported programme will present a stronger coordinated monetary and fiscal policy framework that will anchor stability and prevent a wage-price spiral, which will lead to inflation becoming more entrenched.
“Based on the above assessments, the Committee was of the view that it will be appropriate to pause and observe the impact of the recent monetary policy measures already taken The Committee therefore decided to maintain the monetary policy rate at 19.0 percent,” he remarked.
Meanwhile, the country’s stock of public debt which increased to 78.3 percent of GDP (GH¢393.4 billion) at the end of June 2022, compared with 76.6 percent of GDP (GH¢351.8 billion) at the end of December 2021. Of the total debt stock, domestic debt was GH¢190.1 billion (37.8 percent of GDP), while the external debt was GH¢203.4 billion (40.5 percent of GDP).
Provisional data on budget execution for January to May 2022 indicated an overall broad fiscal deficit on a cash basis of 5.0 percent of GDP, against a programmed target of 3.5 percent of GDP.
The corresponding primary balance for the period was a deficit of 1.4 percent of GDP, against a deficit target of 0.2 percent of GDP. Over the period, total revenue and grants amounted to GH¢29.5 billion (5.9 percent of GDP), below the projected GH¢34.8 billion (6.9 percent of GDP).
Total expenditure was GH¢48.9 billion (9.7 percent of GDP), below the programmed target of GH¢51.8 billion (10.3 percent of GDP).
Ghana’s Gross International Reserves declined to US$7.7 billion at the end of June 2022, equivalent to 3.4 months of import cover, compared withUS$9.7 billion (4.3 months of imports) at the end of December 2021. The decline in the reserve buffer, alongside unfavourable global financing conditions, exerted significant pressures on the foreign exchange market.
On the interbank forex market, the Ghana Cedi cumulatively depreciated against all the three major currencies; 19.2 percent against the US dollar, 8.8 percent against the Pound Sterling, and 10.0 percent against the Euro as at July 20, 2022. In the corresponding period of 2021, the Ghana cedi depreciated by 0.6 and 0.7 percent against the US dollar and the Pound Sterling, and appreciated by 3.3 percent against the Euro.
