Dr. Issahaku speaking at the press briefing
The Bank of Ghana (BoG) has reduced its policy rate by 50 basis points from 26 to 25.5 percent.
The Central Bank attributed the reduction in the policy rate to stability of the Cedi against major foreign currencies over the period, recent drop in inflation and other external factors.
Prior to the announcement, many economists had predicted that BoG will reduce the policy rate because the economy was showing good signs.
The policy rate indicates the rate at which commercial banks can borrow from the Central Bank.
With the reduction in the rate, commercial banks are expected to reduce their interest rates.
Dr. Abdul Nashir Issahaku, Governor of the Central Bank, who was speaking at the last Monetary Policy Committee (MPC) of the year in Accra yesterday, said inflation trends are easing downwards in line with forecasts, alongside subdued underlying inflation.
“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,” he said.
Dr. Issahaku said 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. Other factors include weak private sector credit growth as a result of the tight credit stance and fiscal consolidation efforts. These tight conditions are expected to prevail in the outlook.”
With these considerations, the Committee concluded that the downside risks to growth outweigh the risks to inflation, hence the reduction in the Policy Rate by 50 basis points, he said.
By Cephas Larbi
cephrok@yahoo.com