Policy Rate Falls To 21%


Dr Ernest Addison, BoG Governor

The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has reduced its policy rate by 150 basis points to 21 percent, Governor of the Central Bank has announced.

This represents a 1.5 percent reduction in the rate announced in May, this year which was 22.5 percent.

The policy rate is the rate at which the Central Bank lends to commercial banks.

Governor of BoG, Dr. Ernest Addison, said the reduction in the policy rate, which is the third for 2017, was influenced by a favourable economic outlook.

“In sum, the Committee noted that economic activity continued to improve, supported by a rebound in crude oil production, and is expected to remain in line with trends seen in the first half of the year,” he disclosed.

He indicated that global growth momentum was gradually strengthening with continued support from manufacturing, trade and relatively higher commodity prices.

Dr. Addison further said “these favorable global developments are expected to impact the domestic economy through trade and financial channels, with a positive outlook for the balance of payments, exchange rate and inflation.”

He disclosed that BoG’s leading indicator of growth, the Composite Index Economic Activity (CIEA), suggested some pickup in economic activity in the first five months of 2017, relative to the same period last year.

“The observed momentum in the CIEA was mainly driven by exports, construction and credit to the private sector,” he stated.

Low impact’

Even though the Central Bank continues to cut its lending rate to commercial banks with the expectation that lending rate to businesses by the banks will reduce, it appears nothing is happening.

Quite a number of banks continue to lend to the private sector at exorbitant rates, some at 45.5 percent, making it difficult for the private sector to really feel the impact of the reduction in the Central Bank’s policy rate.

Unchanged interest rates

Asked why the reduction in the monetary policy rate of BoG had not positively reflected in the lending rates of the commercial banks to private players, the Governor indicated that it might take some time to realize the impact on businesses.

He said commercial banks had some other expensive operating costs, which could not go down immediately after the reduction in the policy rate.


From 13.7 percent in April 2017, the Governor observed that core inflation fell to 13.3 percent in May and further to 12.8 percent in June.

“Since the last MPC meeting, headline inflation has declined from 13.0 percent in April 2017 to 12.6 percent in May and subsequently to 12.1 percent in June,” he added.

The results of the latest surveys conducted by the bank pointed to further decline in inflation expectations.

Such trends in headline, core and inflation expectations, according to the governor, showed the dampening of underlying inflation pressures.

“Inflation is therefore expected to continue on its gradual deceleration path towards the medium-term target of 8±2 percent in 2018,” he said.

Exchange market

Noting that the foreign exchange market conditions over the period under review remained stable, he said in June 2017, the Ghana cedi recorded a depreciation of 3.7 percent against the US dollar, compared with a depreciation of 3.3 percent reported in June 2016.

Foreign reserves

The Governor pointed out that the country’s gross international reserves stood at $5.9 billion, translating into 3.4 months of import cover at end June 2017, compared with $4.9 billion (2.8 months of import cover) at end December 2016.

By Melvin Tarlue




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