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EconomyTue, 23 Nov, 21

BoG Increases Policy Rate, Worries About Rising Inflation

BoG Increases Policy Rate, Worries About Rising Inflation

The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) in its 103rd meeting has raised the country’s Policy Rate by 100 basis points from 13.5 percent to 14.5 percent noting that recovery in the real sector of the economy was progressing at a steady pace with high frequency economic indicators reflecting the increased momentum in the pace of economic activity, close to the pre-pandemic levels.

The Committee was particularly concerned about inflation that consistently rising from as low as 7.5 percent in May 2021 to 11.0 percent in October driven by both food and non-food price increases.

“The two readings since the last MPC meeting pointed to a sharp increase in headline inflation from 9.7 percent in August 2021 to 10.6 percent in September and further up to 11.0 percent in October.

“Currently, headline inflation is above the upper limit of the medium-term target band and the Committee noted significant risks to the inflation outlook. These risks include rising global inflation, high energy prices, uncertainties surrounding food prices and investor behaviour.

The Committee further noted that these elevated inflationary risks, require prompt policy action to re-anchor inflation expectations to safeguard the central bank’s price stability objective

Given these considerations, the Committee therefore decided to raise the policy rate by 100 basis points to 14.5 percent,” the report reads.

On the banking sector, the Committee explained that the sector remains sound, and well-capitalised with strong growth in total assets, investments and deposits adding that total assets increased by 16.1 percent to GH¢173.8 billion in the first ten months of the year, reflecting strong growth in investments in government securities by 25.5 percent to GH¢83.4 billion.

It said interbank weighted average rate declined to 12.7 percent from 13.6 percent, largely reflecting improved liquidity conditions, which transmitted to lending rates, on the other hand average lending rates of banks declined to 20.3 percent in October 2021 from 21.3 percent in October 2020, consistent with developments in the interbank market.

“The industry’s Capital Adequacy Ratio of 19.8 percent as at end-October 2021 was well above the current regulatory minimum threshold of 11.5 percent.

Net interest income grew by 15.2 percent to GH¢10.5 billion, compared with 19.9 percent growth over the same review period.

Asset quality has improved somewhat in the course of the year. The Non-Performing Loans (NPL) ratio declined to 16.4 percent in October 2021 from 17.3 percent recorded in August 2021. A year ago, however, the NPL ratio was 15.3 percent in October 2020.”

More so, credit issuance to private sector has started to pick, albeit a slow pace adding the recovery in credit is expected to continue on the back of anticipated net ease in credit stance by banks and increased demand according to BoG.

The Committee concluded by revealing that consumer and business sentiments have turned around, driven by perceived improvements in economic prospects, although consumers expressed concerns about current household finances.

 

Source: Mohammed Bomanso Issah(Real Estate Times Africa)

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