GHANA’S central bank has maintained its benchmark policy rate at 13.5 percent.
In a press release after its 101st Monetary Policy Committee (MPC) meeting on Monday, the bank said the risk of inflation and prospects of economic growth were fairly balanced, to warrant keeping the policy rate at its current level.
‘On the whole, the Committee assessed that the risks to inflation and growth were broadly balanced and decided to keep the policy rate at 13.5 percent,’ said the release.
The Bank of Ghana lowered the rate to this level at the 100th MPC meeting in May, after keeping it at 14.5 percent for more than a year.
The bank however expressed worry about the surging run in the debt levels of the West African cocoa, gold and crude oil exporting country.
‘At 76.6 percent of GDP in May 2021, the level of public debt raises debt sustainability concerns and the Committee reiterated the importance and urgency of fiscal consolidation efforts,’ said the central bank.
It called for greater efficiency in debt management, saying, ‘especially in the face of potential further tightening of global financing conditions which could heighten rollover risks and access to new financing in the outlook.’
Closely related to that, the central bank said was fiscal deficit that exceeded its target in the first five months mainly on the back of revenue underperformance.
‘This calls for strong vigilance and complementarity in fiscal and monetary policies to signal to the markets, a strong commitment to consolidation. Going forward, expenditure has to be aligned to revenue performance to support the fiscal consolidation efforts,’ it urged.
The central bank also noted that its projected economic recovery on the back of Covid-19 vaccination roll-out and a rebounding extractive sector performance could be threatened by the slower growth of credit to the private sector.
It said although the growth rebound observed in the last quarter of 2020 continued into the first half of 2021, ‘the Committee was concerned about the continued sluggishness in new lending by banks which could undermine the growth momentum.’
‘This slow growth in lending reflects increased credit risks on account of uncertainties in the business environment due to the impact of Covid-19 pandemic on the real sector, coupled with very high yields offered on government securities due to increased government borrowing,’ said the Bank.
The statement added that the crowding-out effect continued to keep the credit to GDP gap below the long-term trend, cautioning that “this is likely to delay recovery of the economy and discourage banks from strengthening their credit underwriting processes to manage credit risks from lending to underserved sectors of the economy.”
Ghana’s public debt stood at GH¢332.4 billion or US$ 55.9 billion, equivalent to 76.6 percent of GDP at the end of May 2021, compared with GH¢291.6 billion or $49.07 billion, equivalent to 76.1 percent of GDP at the end of December 2020.
