Policy rate At 14%: Middle East crisis is the elephant in the room – BoG Governor

The Governor of the Bank of Ghana, Johnson Pandit Asiamah, has defended the decision by the Monetary Policy Committee (MPC) to maintain the policy rate at 14 per cent, insisting that lingering geopolitical tensions in the Middle East continue to pose significant risks to Ghana’s inflation outlook and broader economic stability.

Responding to questions from journalists during the 130th MPC press briefing in Accra yesterday, Dr Asiamah described the ongoing Middle East conflict as the “elephant in the room” influencing the central bank’s cautious monetary policy stance.

According to him, although prevailing economic indicators suggest there may be room for further monetary easing, the MPC opted to pause and closely monitor developments because of uncertainties surrounding the global crisis.

“The committee evaluated other forms of risks. The elephant in the room here is the Middle East crisis,” the Governor stated.

“Up to this time, one is not sure whether it is temporary or whether it is going to be long-lasting. If we assume that it will be a longer-lasting one, then you can imagine the impact on inflation expectations and the so-called second-round effects,” he added.

Dr Asiamah explained that while real interest rate trends pointed to possible space for additional rate cuts, the MPC weighed both domestic economic improvements and external risks before arriving at its decision.

“That is why, in the wisdom of the committee, it was decided to pause and evaluate all incoming data so that at the next MPC round, the committee would take an appropriate decision,” he said.

The Governor also addressed concerns over the slow reduction in commercial bank lending rates despite falling benchmark interest rates. He explained that the current low-interest-rate environment remained relatively new to banks, compelling them to adjust their portfolios and lending strategies cautiously.

“When interest rates are falling, it may take a while. You don’t just rush into giving loans. There has to be adequate bankable projects and you don’t compromise your credit appraisal standards,” he said.

According to him, banks were acting prudently to avoid excessive credit risks, but lending rates would eventually decline once the low-interest-rate regime becomes more sustained.

Dr Asiamah further justified the MPC’s decision to revise the dynamic cash reserve ratio to a uniform 20 per cent reserve requirement in domestic currency, effective June 4, 2026.

He explained that the measure followed a review of earlier liquidity management interventions introduced about a year ago.

“In the wisdom of the committee, we think this will go a long way to complement our open market operations,” he noted.

The Governor disclosed that the central bank would engage chief executives of commercial banks next week to explain the implications of the new policy measures.

Commenting on the recent oversubscription of Treasury bill auctions, Dr Asiamah declined to directly discuss government borrowing strategies, saying such matters were better handled by the Ministry of Finance.

“You know it’s a market; it’s an auction. The banks and treasuries make those decisions based on market conditions and what they forecast going forward,” he stated.

Addressing concerns over the depreciation of the cedi, the Governor stressed that Ghana operates a managed floating exchange rate regime rather than a fixed exchange rate system.

“The cedi is expected to move. It can depreciate or appreciate. Our concern is to avoid excessive volatility,” he said.

Dr Asiamah attributed recent depreciation pressures mainly to increased foreign exchange demand arising from higher crude oil prices and dividend repatriation by multinational companies during the April-May reporting season.

“The same volume of crude oil is costing about twice more by way of foreign exchange,” he explained.

Despite the pressures, the Governor assured the public that the central bank had sufficient foreign exchange reserves to maintain market stability.

“The good part of it all is that we have the buffers. We are building them on a daily basis,” he stressed.

He disclosed that Ghana’s Net International Reserves had risen from US$10.9 billion in April to US$12.43 billion currently.

“We should be able to do what we have to do. What we will ensure is that we won’t see a return to the kind of volatility we saw in previous years,” he assured.

Touching on credit distribution, Dr Asiamah said the commerce sector continued to receive the largest share of bank credit, but indicated that all sectors of the economy would benefit if growth in private sector lending is sustained.

He also revealed that the central bank was advancing plans for a digital credit framework that would allow individuals and businesses to access small loans through mobile phones under a regulated system.

“So very soon, no matter which sector you are involved in, you can just raise a loan on your mobile phone,” he disclosed, adding that the system would be properly supervised to prevent abuse.

The Governor further announced that Ghana could witness the launch of its first non-interest banking institution before the end of the year. According to him, the regulatory framework for non-interest banking was being carefully developed to align with international best practices.

“That is something dear to my heart,” he stated.

On the banking sector’s non-performing loans (NPLs), Dr Asiamah disclosed that the central bank had already directed commercial banks to reduce bad loans by the end of 2026.

He revealed that although the gross NPL ratio stood at 18 per cent, the net figure after provisions was around eight per cent.

“We don’t just erase fully provisioned loans because of moral hazard,” he explained, urging banks to continue pursuing loan defaulters to recover outstanding debts.

Regarding disruptions to Ghana’s gold exports arising from the Middle East crisis, the Governor disclosed that temporary challenges affecting shipments to the United Arab Emirates had been resolved through alternative export arrangements.

“The Gold Board has been able to find a way around it,” he said. “Shipments are ongoing,” he added.