Bank of Ghana maintains policy rate at 26%
The Governor of the Bank of Ghana (BoG), Dr Abdul Nasiru Isahaku, says the economy has recovered from its difficult periods and is now on the course of growth.
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He explained at a news conference in Accra yesterday that the turnaround was the result of a combination of painful but necessary fiscal consolidation efforts by the government and a tight monetary stance by the bank, which led to the reduction of the fiscal deficit from 10.1 per cent of gross domestic product (GDP) in 2014 to 6.7 per cent of GDP in 2015.
The 2015 provisional deficit out-turn is 0.6 percentage points lower than the budget target, which is 7.3 per cent.
As a result of the rebound in growth, the governor said the bank had now decided to ease its tightening on the monetary stance to ensure that the new growth trajectory was sustained for the betterment of businesses and the country in general.
That, he said, informed the bank’s decision to maintain its policy rate at 26 per cent. This is the second time this year that the bank has maintained the rate at 26 per cent.
While the Association of Ghana Industries (AGI) has welcomed the decision, a researcher with policy think-tank, the Institute for Fiscal Studies, Mr Leslie Dwight-Mensah, said the decision to maintain the rate was not surprising although it was still unfriendly to growth.
Inspiring growth
The governor said that the move was meant to inspire business confidence and growth, while consolidating the gains achieved in the foreign exchange market.
“We have turned the corner and the economy is on a path to growth. Because of that, we want to continue to do the right things for the momentum to increase so that this new trajectory can be sustained,” he said at the news conference, after the 70th meeting of the Monetary Policy Committee (MPC) of the central bank.
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The latest rate would now serve as a guide to all financial transactions in the country between now and July, when a new policy rate would be announced by the bank.
It was the first time Dr Isahaku has chaired and announced a decision on the policy rate since he took over from Dr Henry Kofi Wampah last month.
Balancing growth with stability
As an institution mandated by law to ensure price stability in the economy, the BoG Governor said his outfit had decided to place more emphasis on fending off inflation as it strives to minimise the impact price increases have on consumer and business confidence.
But while doing that, Dr Isahaku said BoG would continue to keep an eye on growth, which he described as the country’s “new baby.”
“This anticipated growth needs to be nurtured for it to gain some traction.”
“So, whatever decision we take, we have an eye on growth because the growth is still weak. If we fight it further with a tight monetary regime, we will kill it,” he explained.
Mr Dwight-Mensah said in an interview that the “monetary stance is still tight and I do not see how that can inspire growth. At 26 per cent, the policy rate is still too high for businesses,” Mr Dwight-Mensah told the paper.
A high policy rate often translated into higher interest rates, which mostly fuels non-performing loans (NPLs), he said.
Last year, NPLs were around 14.7 per cent but rose to 16.2 per cent in March, last year.
Impact on businesses
The Chief Executive Officer of AGI, Mr Seth Twum-Akwaboah, said the association welcomed the decision to maintain the rate, explaining that it was largely as a result of the stable macroeconomic environment being experienced.
“They maintaining it is in order because we did not in any way expect it to go up. We wish that the stability continues for the rate to go down in the next review,” he said in a separate interview.
Given that a policy rate feeds into interest rates, Mr Twum-Akwaboah was confident a reduction in the rate would help make credit more appealing for businesses to borrow for expansion purposes.
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Remarkable fiscal outturn
The governor described the provisional fiscal outturn for 2015 as remarkable and sign of hope for the economy in the short to medium term.
The results, he said, showed that “something right was happening” hence the need for continuation to ensure that the overall objective of recording a robust economic growth was achieved.