The Monetary Policy Committee (MPC) of the Bank of Ghana has reduced the policy rate to 14.5%.

This is a 150 basis points reduction in the rate which had been kept unchanged at 16 percent for at least five consecutive times.

The policy rate determines the rate at which the central bank lends to commercial banks, which also determines how much interest people pay on their loans.

The MPC, after concluding its meeting on Wednesday (March 18, 2020) said the decision has been influenced by the global developments due to the coronavirus pandemic.

“The dampened global demand could significantly impact Ghana’s crude oil export earnings with major implications for foreign inflows and tax revenues. There is also a likelihood of export restrictions from advanced economies and other emerging market economies which could create supply chain shortages for Ghanaian businesses, with significant impact on imports of intermediate and capital goods, as well as consumption goods,” portions of a statement issued by the Central bank said.

The MPC also said that the pandemic is likely to impact adversely on the government’s revenue as oil prices have witnessed significant reduction.

“This is expected to negatively affect inputs in the domestic production channels with severe consequences for growth and tax revenues which could become more pronounced by the second or third quarter. In addition, crude oil prices have declined sharply to historically low levels, and already creating negative shocks on exports, albeit with some offsetting effects from rising gold and cocoa prices,” it added.

Also, there is an anticipated drop in revenue from domestic producers or traders due to shortage in some commodities, and that economic growth for Ghana is projected to reach five percent by the end of the year.

“In the assessment of the Bank, the negative impact of COVID-19 on exports, imports, taxes, and foreign exchange receipts will culminate in a slowdown in economic activity. GDP growth is forecasted to decline to 5.0 percent in a baseline scenario. In the worst case scenario, GDP growth estimates could be halved to about 2.5 percent in 2020,” the Committee noted.

“These assessments are preliminary as the situation is very fluid and the degree of uncertainty concerning the outbreak is very high. This means that there is a likelihood that these assessments could change rapidly.”

Though the MPC admits that inflation rate is within the central bank’s target of 8 percent plus or minus 2, it believes a reduction in the policy rate should give relief to businesses to enhance their expansion.

Source: Citibusinessnews.com