Government implored to be fiscally prudent following reduction in policy rate
| Updated Nov 28, 2017 at 10:57am
Dr Lord Mensah
A Senior Lecturer at the Department of Finance, University of Ghana Business School, Dr Lord Mensah says government must be prudent in its fiscal matters to allow financial institutions to be clear on their lending tendencies especially to the private sector and individuals.
This follows the reduction of the policy rate by 100 basis point by the Bank of Ghana.
The Bank of Ghana (BoG) announced a reduction of its policy rate by 100 basis points from 21 percent to 20 percent.
The announcement comes after the 79th Monetary Policy Committee (MPC) finished meeting which is the final for the year 2017.
Reduction in the policy rate brings to four the number of times the Central Bank has reduced its policy rate this year from 25.5% to 20%
In an interaction with the media in Accra, on Monday, the Governor of the Bank of Ghana, Dr. Ernest Addison attributed the reason for the reduction to the inflationary trends, Cedi stability and consumer confidence remain strong.
“The indicators of economic activity and business and consumer confidence remain strong. Inflation expectations remain subdued, with core inflation measures in line to achieving the medium-term inflation objective. And, the cedi has remained relatively stable on the foreign exchange market, despite recent movements which are not a reflection of the underlying fundamentals.
The balance payments position remains robust with a projected trade surplus and reduced current account deficit in 2017 and on track to build up over US$700 million additional reserves this year alone, to bring total gross international reserves to US$7.4 billion,” the Governor stated.
Dr. Addison added, “The Committee observed a return to the disinflation path with the Bank’s latest forecast indicating that the horizon for the attainment of the medium-term inflation target of 8±2 percent in 2018 remains unchanged.
This forecast is however contingent on continued improvement in the global economic environment including oil price changes, stability in the foreign exchange market and achieving the medium-term fiscal targets.”
The above according to Dr. Addison, notwithstanding, slower private sector credit expansion and tightening credit stance on enterprises could dampen the growth momentum, the Committee decided to reduce the policy rate by 100 basis points to 20 percent.
He pointed out that, there are indications that the oil-induced growth is gaining momentum, while the slower non-oil growth remains a concern and may require additional impetus to boost overall growth towards its full potential.
“However, recent developments such as the implementation of growth-enhancing government policy initiatives, positive sentiments from businesses and consumers as well as improvement in electricity supply are supportive of non-oil growth,” he added.
The next Monetary Policy Committee (MPC) meeting is scheduled for January 17 – 19, 2018.
The meeting will conclude on Monday, January 22, 2018 with the announcement of the policy decision.