Benchmark lending rate down to 21%

The Bank of Ghana has reduced the monetary policy rate for July to 21 percent.

This is a reduction from the June rate of 22.5 percent.

The Governor of the Bank of Ghana, Dr Ernest Addison announced this at the MPC meeting on Monday (July 24, 2017).

Explainer: The policy rate is the primary rate at which the central bank lends to the commercial banks in the country.

Dr Addison said “Foreign exchange market conditions remain stable supported by improved liquidity conditions, the trade surplus and increased reserves. In the year to June 2017, the Ghana cedi recorded a depreciation of 3.7 percent against the US dollar, compared with a depreciation of 3.3 percent reported in June 2016. Gross International Reserves stood at US$5.9 billion, translating into 3.4 months of import cover at end June 2017, compared with US$4.9 billion (2.8 months of import cover) at end December 2016.”

“In sum, the Committee noted that economic activity continued to improve supported by a rebound in crude oil production, and is expected to remain in line with trends seen in the first half of the year,” he added.

He continued: “The Bank’s CIEA also provides some positive indications of expected increased momentum in economic activity. The broad expectation is that the gradual and steady increases should translate to higher growth profile in the period ahead. In addition, implementation of fiscal policy measures towards providing stimulus through the key initiatives contained in the 2017 budget statement should provide added impetus to growth.”

Many expect that the policy rate will cause commercial banks to reduce their interest rates and also a more stabilised economy.

Dr Anderson said “the disinflation process is still ongoing and this trend is likely to continue all through until the end of the third quarter. Barring any unanticipated shocks, the current stance of monetary policy and expected stability in the exchange rate should ensure price stability. In the outlook, expectations are for the observed decline in headline inflation to continue and converge towards the medium-term target in 2018.”

“Given these considerations, the Committee decided to reduce the Monetary Policy Rate by 150 basis points to 21 percent. The Committee would continue to monitor risks and take the necessary policy action to move headline inflation towards the medium term target.”