BoG maintains Policy Rate at 13.5%
The Bank of Ghana (BoG) has maintained the Monetary Policy Rate (MPR) for the first time since it was cut to 13.5% in May 2021.
The MPR is the rate at which the central bank lends to commercial banks, with a ripple effect on other interest rates.
The central bank said it held the MPR at the previous rate because the “headline inflation has eased sharply and reverted within the medium-term target band, driven mainly by the tight monetary policy stance and some base drift effects.”
“The bank noted that the latest forecast has remained broadly unchanged, with inflation projected to remain within the band and around the central path in the forecast horizon barring any upside risks from fiscal pressures.”
As a result, the committee, upon assessing the risks to inflation and growth, which were broadly balanced, decided to keep the policy rate at 13.5%.
Other considerations that were made in this regard include the uneven vaccination across regions, rising COVID-19 infection rates fuelled by delta variant, cases of vaccine hesitancy and divergence in the recovery across jurisdictions.
The Monetary Policy Committee (MPC) announced this through a press statement on Monday, July 26, 2021.
The central bank explained that since its last MPC meeting in May 2021, global macroeconomic conditions and developments have not changed significantly.
In addition, recent surveys affirm the strong growth recovery process following the COVID-19 shock, driven mainly by continued policy support, mass vaccinations, and the removal of restrictions on movements across several advanced countries.
It also noted that the banking sector performance reflected sustained growth in customer deposits, investments, total assets and profits.
Key financial soundness indicators remain healthy in relation to liquidity and solvency.
“Total assets increased by 17.2% to GH¢162.9 billion, on account of strong growth of 28.8% in investments in government securities to GH¢75.7 billion. Total deposits recorded a year-on-year growth of 22.5% to GH¢110.3 billion on the back of strong liquidity flows,” the statement noted.
Based on macro-prudential risk assessments, the committee expects the banking sector to withstand mild to moderate credit risk shocks.
However, the committee observed that the new wave of the pandemic in the country could further elevate credit risks, which would therefore require close monitoring of banks’ capital and liquidity buffers.
On fiscal operations, it was observed that the budget deficit exceeded its target in the first five months, mainly on the back of revenue underperformance.
“Going forward, expenditure has to be aligned to revenue performance to support the fiscal consolidation efforts,” the committee advised.
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