BoG maintains policy rate at 14.5 per cent

Dr Ernest Addisson - Governor, BoG

The Monetary Policy Committee of the Bank of Ghana (BoG), has maintained the policy rate at 14.5 per cent.

This was after the bank’s latest forecast pointed to elevated risks to the inflation outlook in the forecast horizon, underscored by the recent jump in headline inflation.

On the downside, relief measures on water and electricity tariffs and declining crude oil prices are likely to ease price pressures in the outlook.

Speaking at 94th MPC press conference, the Governor of the BoG, Dr Ernest Addison, said the recent rise in inflation was projected to peak in the second quarter and begin to return to the disinflation path in subsequent quarters with inflation settling within the medium-term target band by the end of the year.


“On the growth outlook, baseline projections show a sharp downturn in GDP growth with the economy operating below capacity in the medium-term. Under the circumstances and given the balance of risks to inflation and growth, the Committee decided to keep the policy rate unchanged at 14.5 per cent,” he stated.


Price developments

After remaining flat at 7.8 per cent for three consecutive readings (January-March 2020), headline inflation jumped up in April to 10.6 per cent—outside the Bank’s inflation target band.

The sharp rise in inflation is attributed to increased demand for food items stemming from the two panic-buying episodes preceding the market fumigation exercises across the country and the partial lockdown in both Accra and Kumasi—the two largest cities.

This led to exaggerated food prices in April. Food and non-alcoholic beverages prices rose to 14.4 per cent, significantly higher than the 8.4 per cent recorded in March 2020. Non-food inflation increased to 7.7 per cent in April 2020 from 7.5 per cent in March 2020.

Monetary and banking sector developments

Dr Addison said the lockdown resulted in a decline in the currency as consumers resort to the use of electronic modes of payment.

He said general economic uncertainty reduced demand for credit, as commercial banks tightened their credit stance.


“As a result, credit to the private sector remained virtually flat during the period. Broad money supply (M2+) slowed significantly to 13.5 per cent in March 2020, compared with 21.6 per cent growth a year ago,” he noted.


“The latest stress tests conducted in April 2020 suggest that banks are strong and resilient and are well-positioned to withstand mild to moderate liquidity and credit shocks on the basis of strong capital buffers and high liquidity positions,” he added.

He said capital adequacy ratio was well above the revised regulatory floor of 11.5 per cent.

However, the industry NPL ratio inched up during the quarter, reflecting the emerging impact of the pandemic on low credit growth and higher loan provisioning.

So far, banks are also responding positively to the recently-announced policy initiatives to support the economy by reducing lending rates and supporting credit growth, as well as offering moratoriums on loan repayments to cushion customers.