The MPR is meant to also check inflation and the rate at which businesses can borrow from commercial banks.
Loans to remain expensive as BoG increases Monetary Policy rate to 29.5%
The Bank of Ghana (BoG) has increased the Monetary Policy Rate by 150 basis points to 29.5 percent.
In his address to the media, Governor of the Central Bank, Dr. Ernest Addison, cited likely risks to the inflation outlook despite the recent moderation and deceleration of inflationary pressures, the marginal stabilisation of the local currency, and near-term forecasts.
“This will be critical in resetting the economy on the path of recovery and sustaining growth. Headline inflation has declined marginally for two consecutive times but continues to remain relatively high compared to the medium-term target of 8+ or -2%.”
“To place the economy firmly on the part of stability, it is important that the Bank of Ghana increases the Monetary Policy rate.”
The development means the cost of credit from banks will continue to be high, thus affecting spending and private sector growth.
The average lending rate is currently 36.64%. This is equivalent to 3.02% interest rate on loans per month.
“Headline inflation has declined marginally for two consecutive months, but continues to remain relatively high compared to the medium-term target of 8±2 percent. To place the economy firmly on the path of stability and reinforce the pace of disinflation, it is important that the monetary policy stance be tuned further to reanchor inflation expectations towards the medium-term target. Given these considerations, the MPC decided to increase the Monetary Policy Rate by 150 basis points to 29.5 percent”, he said.
Dr. Addison further opined that the recent Domestic Debt Exchange Programme (DDEP) has impacted negatively on banks, hence the need for the Central Bank to make necessary adjustments to its regulatory requirements to support the banks.
“Whiles the domestic economy still faces relatively tight global financing conditions and heightened uncertainty about the global economic outlook, the effects of these could be amplified inherent vulnerabilities including structural and excess liquidity following the DDEP and the widening negative outlook gap”.
But he further stated that the banks remain strong, sound and stable based on its recent stress test.
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