BoG reduces policy rate by 150 basis points

The Bank of Ghana has reduced its policy rate to 21 percent.

The figure represents a 150 basis points reduction from the 22.5 percent.

This is the third consecutive time that the policy rate has been reduced by the central bank.

Governor of the Bank of Ghana, Dr. Ernest Addison who announced the new rate at a media briefing on Monday, cited the declining inflation rate, positive economic outlook as well as increase in economic activities as basis for the reduction.

“In addition implementation of fiscal policy measures towards the providing stimulus through the key initiatives contained in the 2017 budget statement should provide added impetus to growth.

The disinflation process is still ongoing and this trend is likely to continue all through to the end of the third quarter barring any unanticipated shock,”

“Given these considerations the committee has decided to reduce the monetary policy rate by 150 basis points to twenty one percent.

The committee will continue to monitor the risks and take the necessary policy actions to move the headline inflation towards the medium term target.”

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

Some have attributed this to the relative high interest rates charged by commercial banks which currently averages 30 percent.

Reacting to the new figure by the central bank, Economist, Professor Godfred Bokpin lauded the move.

According to him, the reduction should also ease the burden for private businesses to be able to access credit.

Though he had hoped that the figure went down further, Professor Bokpin maintains that the reduction is a positive indication.

“I was expecting a marginal reduction in the policy rate therefore I am not surprised with the reduction that we have seen.

It has to be a bit gradual and that said, we are still far away from making credit much cheaper to the private sector. So there is still a lot that we have to do.”

“There is room for it to have come down further but the question is whether it should be done all at a go now or probably in a gradual way and I think that I will go for a gradual way since headline inflation is curbing downwards…

With that said there are other developments that the BoG also has to watch which the stability in the foreign exchange market is and then the transmission mechanism also is very important.”