Economists React To BoG’s Decision To Maintain Policy Rate At 14.5%

Some economists have reacted to the decision by the Bank of Ghana, BoG, to maintain the policy rate at 14.5%.

The policy rate, which is the rate at which the central bank lends to commercial banks, and is also used by banks to calculate their base rates, was kept unchanged at 16 percent for at least five consecutive times prior to its reduction to 14.5%.

In an interview with Citi Business News, an Economist, Dr. Lord Mensah said the rate should have been reduced further to support businesses impacted by the COVDI-19 pandemic.

“We could have enjoyed or better appreciate the policy rate if it was reduced  because the Finance Minister indicated that they will make sure businesses and individuals have access to funds. How will they have access to the funds? I don’t think this is going to be money that will be put directly into people’s pockets. Definitely, those funds will go through the corridors of the financial intermediaries. So, if they had reduced the policy rate, it would have built up into the interest rate structures, therefore people can easily have access to funds,” he stated.

But Dr. Adu Owusu Sarkodie insists the reduction is a step in the right direction, as the market is presently not fully conducive for business activities.

“I think it is all about the inflation rate and also the sensitivity of the lending rate to the policy rate. You remember in setting the interest rate by the commercial banks, the policy rate is just one of the variables that they take into consideration. They also take into consideration inflation, the risks and the macro-economic environment. Now the environment in general is not conducive for businesses. The government is just trying to make sure that we get a good environment to do business. I think the maintenance of the policy rate is a step in the right direction,” he said.

Bank of Ghana maintains policy rate at 14.5%

The Bank of Ghana (BoG) maintained the monetary policy rate at 14.5 percent. The policy rate is the rate at which the Central Bank lends money to commercial banks.

Addressing the 95th Monetary Policy Committee press conference on Monday, July 27, 2020, Governor of the Central Bank, Dr Ernest Addison says

“The Committee was of the view that the current extraordinary circumstances, with a widened budget deficit and a residual financing gap, would require some monetary restraint to preserve the anchors of macroeconomic stability.”

He added that “In the circumstances, the Committee decided to maintain the policy rate at 14.5 percent.”

The Bank of Ghana’s latest forecast shows that inflation is currently above its upper limit, driven mostly by food prices, he indicated.

The Governor observed that adjusting for the unusual noise in the food inflation, the indications are that underlying inflationary pressures are stable.

The Bank projects a return of inflation to the medium-term target band by the second quarter of 2021, conditional on corrective fiscal measures being introduced in the near-term, he said.