BoG reduces monetary policy rate to 29% …as inflation declines

Dr Ernest Addison, Governor of BoG

The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has cut the monetary policy rate by 100 basis points (one per cent) from 30 per cent to 29 per cent on the back of declining inflation and the country’s economic recovery.

The policy rate is the rate at which the BoG lends to commercial banks in the country.

Governor of BoG, Dr Ernest Addison who disclosed this at the first MPC press conference in Accra yesterday, said the policy rate cut was in line with declining inflation.

He explained that headline inflation declined sharply by more than 30 percentage points in the course of 2023.

He was addressing journalists after the 116th regular meeting of the MPC on global and macroeconomic development including the assessment of the economy and the risks to the outlook for inflation.

“Several factors have supported the disinflation process, namely, the tightening monetary policy stance throughout 2023, favourable international crude oil prices which led to stable ex-pump prices and transportation costs, and relative stability in the exchange rate,” Dr Addison who is the Chairman of the MPC stated.

He said the latest forecast suggested that the disinflation process would continue, and headline inflation was expected to ease to around 13-17 per cent by the end of 2024, before gradually trending back to within the medium-term target range of 6-10 per cent by 2025.

“These forecasts notwithstanding, there are upside risks to the inflation outlook and there is need for strict implementation of the 2024 budget and a tight monetary policy stance to sustain the disinflation process,” he emphasised.

Dr Addison said apart from the disinflation process, the MPC observed a recovery in the Ghanaian economy, stating the growth rate recorded last year was more than envisaged under the IMF programme.

“The committee noted the emerging recovery but sees the need to maintain a strong policy stance to consolidate the disinflation gains. Under these circumstances, the committee decided to reduce the Monetary Policy Rate by 100 basis points to 29 per cent,” the Chairman of MPC said.

Dr Addison said there were clear indications that the current macroeconomic framework being implemented with the support of the International Monetary Fund under the Extended Credit Facility programme was yielding positive results, stressing that “the macroeconomic fundamentals have all trended in the right direction.”

Dr Addison said the country’s stock of Gross International Reserves ended the year 2023 at $5.9 billion, enough to cover 2.7 months of imports of goods and services.

On the global economy, the Governor said the committee noted that global growth had remained relatively subdued in 2023, while the ease in global inflation had triggered a pause in monetary policy tightening across key economies.

Commenting on the new monetary policy rate, a Banking Consultant, Nana Otuo Acheampong, said the cut in the policy was expected considering the trend of inflation.

He said the cut in the policy rate was good for the government and all stakeholders.

“Even in the real market, you realised prices are falling and so it was expected. Since BoG is practicing inflating targeting, interest rate should go in tandem with policy rate, and the BoG will have no justification to maintain the policy rate,” he stated.

BY KINGSLEY ASARE