Ghana slashes benchmark rate to stimulate growth

Dr Abdul-Nashiru Issahaku – Bank of Ghana Governor
Dr Abdul-Nashiru Issahaku – Bank of Ghana Governor

The Monetary Policy Committee (MPC) of Ghana’s central bank announced here on Monday a further 200 basis point reduction in its benchmark policy rate to 23.5 percent from the previous 25.5 percent.

Dr Abdul-Nashiru Issahaku – Bank of Ghana Governor
Dr Abdul-Nashiru Issahaku – Bank of Ghana Governor
This reduction, announced by Governor of the Bank of Ghana, Abdul-Nashiru Issahaku at a press briefing after the 75th regular MPC meeting, was due to an easing inflationary pressure as well as a lower economic growth prospect.

“The Committee noted that underlying inflation pressures have eased considerably and inflation is projected to trend down towards the medium-term target. However, there are indications that growth is likely to remain significantly below potential, which alongside an improved inflation outlook provides some scope for monetary policy easing,” the governor explained.

In addition, he said “recent developments in inflation imply an implicit tightening. Consequently, the MPC has decided to reduce the Monetary Policy Rate by 200 basis points to 23.5 percent”.

In January, the MPC announced a 50 basis points slash in the policy rate to 25.5 percent from the previous 26 percent as inflation started trending down from October 2016 from as high as 19 percent in January 2016 to 15.4 percent by December 2016 and further to 13.3 percent in February 2017.

The central bank uses its Inflation Targeting (IT) model to ensure price stability as well as induce economic growth.

The governor added that the country was gradually getting back on the path of disinflation, hoping that the medium inflation target of 8.0 percent (plus or minus two percent) could be achieved by 2018.

The 2017 budget signaled a return to the path of fiscal consolidation with a projected fiscal deficit of 6.5 percent of GDP based on improved revenue mobilization and controlled expenditures.

Commenting, Leslie Dwight Mensah, an economist at the Institute of Fiscal Studies (IFS), said the reduction was good, especially as it would free credit for the private sector and stimulate growth in the economy.

“This is good for the private sector because in 2016 the real growth of private sector credit was negative; it is positive for consumption and investment which will help economic growth,” the economist stressed.

Excluding inflation, the private sector in Ghana got less credit than the year before while economic growth has been trending downwards for five years culminating in a 3.6 percent provisional economic growth for 2016.

“Inflation has been dropping since October 2016 and the bank indicated that the outlook is for inflation to drop further; juxtapose this with the growth picture which has been poor at the same period that policy has been tight,” Mensah observed.

He argued: “The time is right, now, to stimulate growth while the inflation outlook has improved. This will support the fiscal stimulus that the government has injected through its tax measures.” Enditem

Source: Justice Lee Adoboe, Xinhua/

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