The Bank of Ghana (BoG) has reduced its Monetary Policy Rate to 13.5 percent.
The reduction by 100 basis points follows the maintenance of the rate for six consecutive times since March 2020 when it was reduced to 14.5 percent from a previous policy rate of 16 percent, as part of counter-cyclical measures to mitigate the impact shock of the coronarivurs pandemic on the country.
The reduction in the policy rate was announced by Governor of the Bank of Ghana, Dr Ernest Addison on Monday, May 31, 2021.
With a reduction in the policy rate, lending rates by commercial banks to businesses is expected to fall in line with the new policy rate.
According to Dr Addison, the decision by the Committee to cut the policy rate is due to the fact that inflation is expected to remain within the Bank’s target band in the next quarter.
“The forecast showed that inflation will be close to the central target by June 2021. These forecasts remain broadly unchanged and inflation would remain within the target band in the next quarter. Risks to the inflation outlook appear muted in the near-term, but pressures from mostly rents and transport fares, would require some monitoring to anchor inflation expectations,” stated the Governor.
“Under these circumstances, the Committee decided to lower the Monetary Policy Rate by 100 basis points to 13.5 percent. The Committee will continue to monitor price developments closely and take appropriate action, where necessary, to contain all potential pressures to the inflation outlook,” added Dr Addison.
Gross International Reserves (GIR), according to the Governor, at the end of April 2021, stood at US$10,990.3 million providing cover for 5.1 months of imports of goods and services.
The reserve level compares with a stock position of US$8,624.4 million, equivalent to 4.1 months of import cover recorded at the end of December 2020.
The primary balance also recorded a deficit of 0.7 percent of GDP compared to the target deficit of 0.4 percent of GDP. Over the first quarter, total revenue and grants amounted to GH¢12.8 billion (3.0 percent of GDP), lower than the projected GH¢15.8 billion (3.7 percent of GDP).
Total expenditures and arrears clearance amounted to GH¢24.3 billion (5.6 percent of GDP) against the target of GH¢26.5 billion (6.1 percent of GDP).
The BoG at its 100th MPC press briefing noted fiscal deficit in the first quarter was mainly from domestic sources, which pushed up the stock of public debt to GH¢304.6 billion at the end of March 2021, compared with GH¢292.7 billion at the end of December 2020. Of the total debt stock, domestic debt was GH¢163.6 billion (37.7 percent of GDP), while the external debt was GH¢141.0 billion (32.5 percent of GDP).