BoG keeps policy rate at 16%; 5th time running

Monetary Policy Committee of the Bank of Ghana (BoG) has kept the policy rate unchanged at 16 per cent.

Speaking to the media at a news conference on Monday, the Governor of the Bank of Ghana, Dr Ernest Addison said the decision was as a result of some threats to the country’s economic growth and inflation outlook.

Dr Addison added that threats to inflation is broadly balanced hence the need to maintain the policy rate at 16 per cent.

This is the fifth time this year that the Bank of Ghana has kept its rate unchanged; since January this year.

Possible impact of this move

The Monetary Policy Rate is part of several tools that the Bank of Ghana uses to help control inflation or help meet its medium inflation target.

The Bank’s monetary policy objective is to ensure price stability – low inflation – and subject to that, to support the government’s economic objectives including those for growth and employment. Price stability is defined by the government’s inflation target. This target is revised annually and spelt out clearly in the budget statement for each fiscal year.

The objective recognizes the role of price stability in achieving economic stability more generally, and in providing the right conditions for sustainable growth in output and employment.

For some analysts, this is more of “signal setting” or maybe clear signal that that Bank of Ghana is worried about future threats to the economy and inflation outlook.

The three readings of inflation since the release of the rebased Consumer Price Index by the Ghana Statistical Service show that inflation has remained below its central path of 8 percent.

Headline inflation declined from 7.8 percent in August 2019 to 7.6 percent in September, and has since inched up to 7.7 percent in October on the back of the recent upward adjustment in administrative prices of electricity and water. Looking ahead, inflation is projected to stay within the medium-term target of 8±2 percent over the forecast horizon.

Inflation expectations for businesses, consumers, and the financial sector, appear to be well-anchored within single digits despite a slight pick-up in the Bank’s measure of core inflation.

Impact on cost of credit

The Policy Rate is seen as the rate at which the Bank of Ghana lends to commercial banks in the country. Therefore the decision to hold it at 16% could impact on the cost of credit in the coming months.

Bank of Ghana Governor and other developments on the economy 

The governor said the cedi’s sharp depreciation has slowed over the past months.

He added that the new measure will also help reduce the cost of credit for small businesses in the country.

Dr Addison also announced reviewing compensation for bank management, board of directors and key management personnel.