The Bank of Ghana (BoG) has been lauded for increasing the policy rate by 250 basis points to 17% amid increases in oil and food prices.
The policy rate is indicative of the rate at which the Bank of Ghana lends to commercial banks in the country. This means that one could be paying more on the loans from commercial banks depending on their interest rate.
Talking to Kwaku Nhyira-Addo on Tuesday (22 March), banking consultant Richmond Atuahene said the central bank’s new policy rate was a step in the right direction.
“Until we come to a position that we all agree that we are not going to use inflation targeting, I believe what the Bank of Ghana did yesterday is a step in the right direction, I appreciate that the cost will go up.
“You see what we forget is that the cost of borrowing, it is not only interest rate that affects it. The economy is structurally imbalance …there are other factors that goes into it that we need to address,” Atuahene said.
Growth of domestic conditions fairly strong
The Governor of the Bank of Ghana (BoG), Dr Ernest Addison, has said domestic growth conditions are fairly strong despite signs of weakening consumer and business sentiments.
Speaking at the 105th MPC press briefing in Accra, Dr Addison, said the steady increase in private sector credit growth has continued with positive growth implications.
He said banking sector performance remains strong, with sustained growth in total assets, investments and deposits.
Key financial soundness indicators such as profitability, liquidity and solvency remain healthy. Asset quality improved slightly, although there are upside risks to the outlook, requiring continued monitoring to address early signs of stress within the sector.
Dr Addison said, “The uncertainty surrounding price developments and its impact on economic activity is weighing down business and consumer confidence. The risks in the outlook for inflation are on the upside and include petroleum price adjustments and transportation costs, and exchange rate depreciation. The Bank’s latest forecast still depicts an elevated inflation profile in the near term, with inflation falling within the medium-term target band within a year.”
He said, “Fiscal policy implementation has come under strain, reflecting embedded rigidities in the fiscal framework which will require extensive structural reforms to free fiscal space to restore both fiscal and debt sustainability.
“Revenue performance has been slow to align with projections, while expenditure remains rigid downwards despite the strong efforts to cut expenditure by 20% as announced by the government. The above have resulted in financing constraints which would have to be resolved very swiftly to ensure the announced fiscal consolidation path is achieved.”
Dr Addison added, “The MPC is however confident that ongoing discussions will lead to very decisive policy reforms that will address underlying fiscal mismatches and restore some calm in the markets. This, together with the monetary policy decision and additional measures, should help re-anchor inflation expectations.
Fred Dzakpata
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