The Bank of Ghana has refused to tamper with the Policy Rate from last year, consequently maintaining it at 16%.
The maintenance was announced this morning by the BoG’s Monetary Policy Committee in Accra, making it the sixth time in a row that the central bank is leaving the rate at which it lends to commercial banks unchanged.
Throughout the last half of 2019, the BoG had maintained the Policy Rate at 16%.
Explaining the decision, Chairman of the Monetary Policy Committee, Dr. Ernest Addison, said the maintenance, which disappoints the widespread expectation that the Policy Rate would be reduced, is a precautionary measure.
“I think that is a very cool observation, inflation seems to be within our policy corridor and whether on the basis of that the Central Bank should have gone ahead to cut the policy rate, I think that in sense it helps feel that were are being cautious and the reason for why we are being cautious is the dependent of our budget on external financing in particular non-resident participation in our bond market, it important they are very sure that the budget is fully financed before we can take any decision that may have implications on the financing of the budget.”
But others have also interpreted that the precaution is at least partly informed by the fact that the country is going to the polls this year.
Ahead of the announcement, many observers, including Dr. Laud Mensah, Senior Lecturer at the University of Ghana Business School had expressed the expectation that it would be maintained as inflation had become fairly stable at 7.9%.
As the Policy Rate tends to have a direct bearing on the rate at which commercial banks lend to customers, he was of the view that a reduction would help bring interest rates down and therefore boost liquidity in the system.
“You want to adopt that kind expansionary approach where you will lower the rate for people to have access to funds through the financial system, as we’ve done the cleanup already in our medium of transmission of funds. So I’m expecting that the policy rate will be reduced and going into an election year I believe the policy committee will like to improve on the liquidity in our system if I say liquidity I mean access to funds, and funds exchanging hands from one point to the other, if you increase it you will not realize this mechanism of having funds throwing around. I believe that if anything at all it should be maintained or reduced…” he had argued.