The governor of the Bank of Ghana, Ernest Addison attributed the reduction of the policy rate to a balance in growth in the economy as well as the downward trend of inflation.
This was announced by the governor of the Bank of Ghana, Ernest Addison.
He attributed the reduction to a balance in growth in the economy as well as the downward trend of inflation.
“The Committee noted that the pace of economic activity has picked up, driven mainly by growth in private sector credit, improved business sentiments, and easing credit stance."
“Furthermore, increased oil production from both Jubilee and TEN fields and the coming onstream of further activity in the oil and gas sector from the Sankofa Gyenyame Ntomme (SGN) fields by the third quarter should give added impetus to overall growth prospects. In sum, there is evidence to suggest that the economic imbalances that existed at the end of 2016 are giving way to stronger fundamentals with economic activity expected to pick up strongly in the period ahead, albeit below potential,” he added.
He also indicated that the 2017 budget presented by the Minister of Finance, Ken Ofori Atta indicates a return to the path of fiscal consolidation. Therefore, a reduction in the fiscal deficit for the year is expected to create more stable macroeconomic conditions.
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“On inflation, the Committee noted that headline inflation and inflation expectations have broadly trended downwards. The disinflation process has been supported by a tight policy stance and exchange rate stability. With a stable outlook for exchange rate movements and return to the path of fiscal consolidation, headline inflation is expected to trend towards the medium-term target in 2018, barring any unanticipated shocks.”
“Given these considerations, the Committee judged that the downside risks to growth outweigh the upside risks to inflation in the outlook, and therefore decided to reduce the policy rate by 100 basis points to 22.5 per cent. The Committee would continue to monitor risks and take the necessary policy action to move headline inflation towards the medium-term target.”
The policy rate is an indicator of the rate at which the Central Bank lends to Commercial banks. Per the new rate it means bank customers are likely to be paying less on the loan they are servicing or intend taking from the bank.