BOG cuts Policy by 200 basis points, reduced to 18%

Governor of the Bank of Ghana, Dr. Ernest Addison

Bank of Ghana (BOG) has today announced a reduction in its Monetary Policy Rate (MPR) by 200 basis points from the current 20% to 18%.

The cut in the policy rate which is the biggest drop since November 2014, according to the Governor of the Bank of Ghana, Dr. Ernest Addison was influenced by positive economic outlook.

“The Committee observed that the pace of global growth has firmed up. Though price pressures are picking up, core inflation in most advanced economies remain subdued. Global financing conditions still remain favourable, sustained by relatively low interest rates in most advanced economies.”

“The outlook for growth, in the near term, is for continued robust expansion towards growth potentials as output gaps gradually close. These notwithstanding, downside risks to global growth exist including the abrupt tightening of global financing conditions, escalating trade protectionism and geopolitical tensions,” the governor added.

Dr. Addison addressing the media after the bank’s 81st regular meeting of the Monetary Policy Committee (MPC) in Accra, said the decision is based on the central bank’s moves to achieve the annual inflation target.

“The disinflation process continued to firm up over the first two months of the year, with significant moderation in price pressures. Both headline and core inflation broadly trended down, alongside easing inflation expectations, an indication that the disinflation process remains well-anchored.”

He intimated that, “Growth prospects for 2018 remain positive and are expected to be supported by crude oil production, gradual recovery in the nonoil sector, and favourable business and consumer sentiments. The pace of growth in economic activity as reflected by the latest update in the CIEA showed some improvements, although still below potential for a number of reasons, including moderated credit growth due to high NPLs, tighter credit conditions and corrections in the balance sheets of the banking sector.”

On whether or not they were on track to meet the single inflation target as by the bank, the governor said, their latest forecast suggests that the medium-term inflation target of 8±2 percent is within the forecast horizon and on course to meeting the inflation target band.

This comes to confirm projections by industry watchers and analysts that the Monetary Policy Committee (MPC) of the Bank of Ghana was likely to reduce the policy rate at its next meeting considering the gains made in the economy.

Policy rate is the rate at which the central bank lends to commercial banks for onward lending to the general public and institutions who are their customers.

At the last meeting of the MPC in January this year, the committee held the rate at 20% with the view to help keep inflation at a stable rate.

For some time now, some industry watchers have criticised the margin of decrease in the lending rates of commercial banks despite the significant reduction by the Bank of Ghana which cut the rate from 25.5% in January 2017 to 20% by December 2017.

On decisions which has been taken with regards banks, the governor maintained that recent regulatory measures are aimed at stabilizing the banking sector and confidence.