The Bank of Ghana (BoG) has cut its policy rate by 150 basis points from 22.5 per cent to 21 per cent due to the downward trend in consumer inflation.
Before Monday’s cut, the central bank had cut the rate by 300 basis points this year, trailing the 420 basis-point decline in the 91-day treasury bill rate.
The Governor of the BoG, Dr Ernest Addison who announced this at a news conference in Accra yesterday said the banks surveys on price growth “suggest dampening of underlying inflation pressures.”
He said the disinflation process “is still ongoing and this trend is likely to continue all through till the end of the third quarter.”
The cut in the benchmark interest rates was due to the slow growth in inflation from a record high in March last year and the recovery of the cedi from an all-time low.
T-bills rates
The 91-day treasury bill rate, used by banks to determine their lending rates, also eased 417 basis points since January to 12.6 per cent on July 21.
The government has vowed to boost growth from last year and Dr Addison, who also doubles as chairman of the Monetary Policy Committee (MPC), noted that economic activity continued to improve, supported by a rebound in crude oil production and is expected to remain in line with trends seen in the first half of the year.
“The disinflation process is still ongoing and this trend is likely to continue all through till the end of the third quarter, Dr Addison said.
He said he was hopeful that barring any unanticipated shocks, the current stance of monetary policy and expected stability in the exchange rate should ensure price stability.
“In the outlook, expectations are for the observed decline in headline inflation to continue and converge towards the medium-term target in 2018”.
Exchange rate market
He said foreign exchange market conditions remained stable supported by improved liquidity conditions, trade surplus and increased reserves.
In the year to June 2017, the cedi recorded a depreciation of 3.7 per cent against the US dollar, compared with a depreciation of 3.3 per cent reported in June 2016.
Gross International Reserves stood at US$5.9 billion, translating into 3.4 months of import cover at end June 2017, compared with US$4.9 billion (2.8 months of import cover) at end December 2016.
The Governor said the BoG’s Composite Index of Economic Activity (CIEA) also provides some positive indications of expected increased momentum in economic activity.
The broad expectation is that the gradual and steady increases should translate to higher growth profile in the period ahead.
In addition, implementation of fiscal policy measures towards providing stimulus through the key initiatives contained in the 2017 budget statement should provide added impetus to growth.
“Given these considerations, the committee decided to reduce the Monetary Policy Rate by 150 basis points to 21 per cent. The committee would continue to monitor risks and take the necessary policy action to move headline inflation towards the medium-term target,” Dr Addison said.
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