Bank of Ghana
Bank of Ghana

The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) announced here on Monday its decision to slash the benchmark policy rate by 100 basis points (bps) to 20 percent, relative to the existing 21 percent.

According to Ernest Addison, governor of the bank, the decision stems from the easing of inflationary pressures and the need to induce growth in the non-oil economy of the country.

“There are indications that the oil-induced growth is gaining momentum while the slower non-oil growth remains a concern and may require additional impetus to boost overall growth towards its full potential. Slower private sector credit expansion and tightening credit stance on enterprises could dampen the growth momentum.

“Under the circumstances, the committee decided to reduce the policy rate by 100 basis points to 20 percent,” Addison said.

The governor said the committee’s core mandate of ensuring price stability was also seeing positive results as inflation had consistently pointed south.

The committee, he said, also observed a return to the disinflation path with the bank’s latest forecast, indicating that the horizon for the attainment of the medium-term inflation target of 8±2 percent in 2018 remained unchanged.

Addison however pointed out that attaining that forecast depends on continued improvement in the global economic environment, including oil price changes, stability in the foreign exchange market, and achieving the medium-term fiscal targets.

Price developments during the first 10 months of the year continued to show signs of dampening inflation expectations in Ghana, with headline inflation measured by the consumer price index dropping to 11.6 percent for October 2017.

Addison added that all indices of the bank on core inflation continued to decline in October, pointing to a downward trend in underlying inflation, well within or close to the year-end inflation target.

Analysts had been expecting a reduction of between 50 basis points and 150 basis points in the policy rate, which is the rate at which commercial banks borrow from the central bank, as a last resort.

In a mailed message, Chief Economist for Africa and Global Research at Standard Chartered Bank Razia Khan described the decision as a sizable move “although falling short of the 150 bps of easing we believe the BoG could as easily have put in place.”

“It is positive to see the central bank making use of the opportunity provided by lower inflation.”

“Given Ghana’s continued adherence to the International Monetary Fund program, with fiscal restraint in place and zero BoG financing of the deficit, we expect inflation to remain well-behaved,” Khan said. “With reforms institutionalized, inflation in Ghana should be able to fall further on a structural basis. Given still-high real interest rates, we believe that there is room for further easing.”

She however pointed out that currency weakness could see the BoG adopt a more cautious pace of easing, going forward. Enditem

Source: Xinhua/NewsGhana.com.gh

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