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BoG reduces policy rate to 25.5%

The Bank of Ghana (BoG) has cut its key interest rate policy by 50 basis points from 26 per cent to 25.5 per cent due to the positive inflation outlook and the desire to boost growth.
At a news conference in Accra yesterday, the Governor of the BoG, Dr Abdul-Nashiru Issahaku, said the downside risks to growth outweighed the risks to inflation, for which reason the Monetary Policy Committee (MPC) decided to cut the rate by 50 basis points.

Checks by the Daily Graphic indicate that the current interest rate cut is the first since July 2011 and the governor is upbeat that the cut, which will reflect in interest rates at the banks, can help ease a long-standing concern of businesses that the cost of borrowing is too high, thereby stifling prospects for expansion.

Global demand

“Growth conditions remain weak and below trend. This is underpinned by weak global demand, declining commodity prices and disruptions in the production of oil and gas.

“With these considerations, the committee concluded that the downside risks to growth outweigh the risk to inflation and, therefore, decided to reduce the policy rate by 50 basis points to 25.5 per cent,” Dr Issahaku said.

He further stated that “the outlook for inflation is broadly positive, as reflected in the continued decline in the underlying inflation, stability in the foreign exchange market, low aggregate demand conditions and general high real interest rates”.

Cedi stability

Dr Issahaku said the policy tightness and continued stability of the exchange rate largely accounted for the declining trends, as the recent decline in inflation was driven mainly by non-food inflation.

Inflation has been outside the central bank’s target band of between six and 10 per cent band for almost four years even as price growth slowed to 15.8 per cent in October, the lowest rate since July 2014.

The economy is expected to expand by 4.1 per cent this year.

The governor, who blamed speculators for the marginal decline in the value of the cedi, said foreign inflows from the Eurobond, the $1.8 billion pre-export finance facility for cocoa and other expected inflows would support efforts to build up external reserves.

Currency speculation

“Some of what we are seeing now are purely speculative because we have a stock of forex available,” Dr Issahaku said, adding: “There’s no shortage of forex on the market.”

The cedi had cumulatively depreciated by 4.3 per cent against the dollar between January and October this year, compared to the cumulative depreciation of 15.5 per cent during the same period last year.

“The outlook for the exchange rate remains positive and the committee is optimistic that the cedi stability will be sustained,” he said.

The reduction in inflation to 15.8 per cent is as a result of headline inflation which has gradually trended downwards in the year and the effects of upward adjustments in petroleum, utility and transport prices.

Analysts say the government’s economic record is a crucial issue for voters, with the opposition arguing that economic mismanagement has reduced living standards.

The government will almost certainly cite the rate cut as evidence that the economy is improving.

GRAPHIC

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