BoG reduces policy rate to 13.5 per cent

The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has cut the policy rate by 100 basis points from 14.5 to 13.5 per cent on the back of the recovery of the economy and easing of inflation pressures.

This is first time since November 2019, according to data by the website of the BoG, that the MPC has reduced the policy rate to 13.5 per cent.

Addressing the 100 MPC press confab in Accra yesterday, Dr Ernest Addison, said rebound in economic activity and easing of inflation pressures informed the decision of the Committee.

He said the improvement in the economic activities of the country necessitated the accommodative policy stance of the Committee.

Dr Addison, who also chairs the MPC, said on the domestic front economic activities had picked up strongly and the banking sector remained sound and profitable, with adequate levels of capital and liquidity to withstand moderate to severe shocks.

“In the domestic economy, the recovery process front the pandemic gained some momentum evidenced by the latest high frequency indicators.  The Bank’s updated Composite Index of Economic Activity registered strong annual growth of 26.8 per cent in March 2021, compared to a contraction by 1.9 per cent in the corresponding year of 2020,” he said.

Dr Addison stressed that the projected growth in the extractive industries, steady roll out of the vaccination programme and recovery in industry and the services sectors should work their way in supporting a faster closure of the output gap in the medium-term.

The Governor said inflation had dropped from 10.3 in March to 8.5 per cent April, on the back of lower food prices, back to the pre-pandemic inflation levels.

“Headline inflation eased sharply to within the medium term target band driven mainly by lower food prices and base drift effects, a tight monetary stance and stable exchange rate conditions.  Since the initial shock to inflation in April in 2020, the forecast showed that inflation will be close to the central target by June 2021,” Dr Addison said.

Asked of the effect of the recent increases in petroleum products and taxes on inflation in relation to the cut in the policy rate, the Governor said “The cut in the policy rate reflects the confidence of the Committee that the recent increases in fuel prices and taxes will not necessarily lead to increases inflation.”

 Dr Addison said the global financing conditions remained positive of the recovery process in the world and the Ghanaian economy, saying the persistence of low borrowing costs, declining long-term bond yields, and compressed sovereign bond spreads, reflected the affirmation of accommodative monetary policy stance by major central banks.


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