The Monetary Policy Committee of the Bank of Ghana has voted to maintain the policy rate unchanged at 16 percent for the sixth consecutive time. This has a direct impact on the interest people pay on their loans, as it determines the rate at which the Central Bank lends to commercial banks in the country.
The Chairman of the Committee, Dr. Ernest Addison, who’s also the Governor of the Central Bank, speaking at the press conference on Friday morning, justified the decision to maintain the policy rate despite inflation declining to 7.9 percent, well within the Bank’s medium-term inflation target.
The last time the policy rate was reduced was a year ago when the Bank reduced the rate by 100 basis points to 16 percent.
Dr. Addison stated that while inflationary pressures remain balanced, the committee nonetheless decided to keep the policy rate unchanged in a move that will be seen as precautionary as the country heads into December 2020 elections.
“I think that is a very cool observation, inflation seems to be within our policy corridor and whether on the basis of that the Central Bank should have gone ahead to cut the policy rate, I think that in sense it helps feel that were are being cautious and the reason for why we are being cautious is the dependent of our budget on external financing in particular non-resident participation in our bond market, it important they are very sure that the budget is fully financed before we can take any decision that may have implications on the financing of the budget.”
Call for reduction
Financial Economist and Senior Lecturer at the University of Ghana Business School, Dr. Lord Mensah ahead of today’s announcement said it will be prudent for the Bank of Ghana to reduce the Monetary Policy Rate.
According to the Economist, a reduction from the current 16% rate will improve the liquidity position in the country.
The policy rate which determines the rate at which commercial banks borrow from the Central Bank has been kept at 16% for the past 12 months.
Dr. Lord Mensah said if the country wants to adopt an expansionary approach then there will be the need to reduce the policy rate.
He noted that the reduction will make it easy for people to have access to funds to carry out their activities.
“You want to adopt that kind expansionary approach where you will lower the rate for people to have access to funds through the financial system, as we’ve done the cleanup already in our medium of transmission of funds. So I’m expecting that the policy rate will be reduced and going into an election year I believe the policy committee will like to improve on the liquidity in our system if I say liquidity I mean access to funds, and funds exchanging hands from one point to the other, if you increase it you will not realize this mechanism of having funds throwing around. I believe that if anything at all it should be maintained or reduced…”
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