Ghana: BoG Keeps Policy Rate At 13.5 Percent

28 September 2021

The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has for the third consecutive time maintained the policy rate at 13.5 per cent, citing a fairly balanced risks to inflation and growth in the outlook.

Cutting the policy rate by 100 basis points from 14.5 per cent in March 2021, to 13.5 per cent in May 2021, the MPC has maintained the policy rate at 13.5 since May, 2021.

The policy rate is the rate which the Bank of Ghana borrows to the commercial banks in the country.

Addressing a news conference to announce the new policy rate in Accra yesterday, the Governor of the BoG, Dr Ernest Addison, who doubles as the Chairman of the MPC, said the committee, among others, decided to maintain the policy rate on the back of the economic recovery in the domestic economy, and positive internal position of the country.

He said the economy continued to recover from the impact of the pandemic, saying the high frequency economic indicators pointed to continued recovery in the economy, even though below the pre-pandemic levels.

According to recent figures released by the Ghana Statistical Service (GSS), Ghana's economy grew by 3.9 per cent in the second quarter of this year, compared with the 5.7 per cent contraction in the same period last year, influenced by strong growth in the cCocoa sub-sector which grew by 27.6 per cent, Hotels and Restaurants 18.7 per cent, 13.8 per cent in Real Estate and 10.7 per cent in trade.

Dr Addison said although inflation had risen sharply over the last two readings, the MPC was of the view that the increase in inflation was mainly due to food inflation which was expected to abate with the onset of the harvest season.

"This notwithstanding, the latest forecast indicates that inflation will remain within the medium-term target band, but closer to the upper limit in the near term, in the absence of further unexpected shocks," he said.

After dropping from 10.3 per cent in March, 2021 to 7.5 in May 2021, inflation had been on the upward trend, 7.8 per cent in June, 9.0 in July and 9.7 in August, figures from the GSS indicated.

On the banking sector, the Governor said the banking sector balance sheet performance remained strong with sustained growth in total assets, investments and deposits, adding that profitability levels remained high, with profit growth driven by increased income growth.

"The financial soundness indicators remain broadly sound, although credit risk appears elevated and needs to be carefully monitored. Bolstered by strong capital and liquidity buffers, banks are expected to withstand mild to moderate credit risk shocks emanating from deterioration in asset quality," he said.

On the international developments, Dr Addison said the external payments position remained strong despite the decline in the trade surplus due to a stronger import growth and a widening current account deficit which had been adequately financed with external inflows from portfolio and foreign direct investments.

He said the country's Gross International Reserves stood at $11.4 billion, equivalent to 5.2 months import cover at the end of August 2021, saying the strong reserves build-up over the period under review provided some buffer to the local currency.

"The Ghana Cedi has performed strongly with a year-to-date depreciation of 1.8 percent. The country's higher sovereign spread has not shifted foreign investor behaviour as net monthly purchases of securities on both the debt and equity markets remain relatively favourable," Dr Addison, said.

He said the global financing conditions remained generally supportive of the recovery process, largely due to the continued accommodative stance of major central banks, despite rising inflationary pressures.

"Given these considerations, and the fairly balanced risks to inflation and growth in the outlook, the committee decided to keep the policy rate at 13.5 per cent," Dr Addison said.

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