The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has, for the first time since November last year, maintained the policy rate at 19 per cent.
The Governor of the BoG and Chairman of the MPC, Dr Ernest Addison, who announced the decision on the policy rate at a press conference in Accra yesterday[July 25, 2022], said the committee arrived at the decision due to current inflation trends which rate of increase had begun to see a deceleration.
He said the committee observed that inflation had persisted on a rising path, with a detailed review of the consumer basket showing that although the rise was initially driven by supply side shocks, the initial relative price changes had broadened to almost all the items in the consumer basket, with over 80 per cent of the items recording inflation of above 20 per cent.
According to the governor, inflation perceptions and expectations, as revealed in the bank’s surveys of consumers and businesses, had increased, thereby influencing agitation for cost-of-living allowances at workplaces.
“The BoG has responded decisively with its policy tools over the last few months, increasing the policy rate by a cumulative 550 basis points since November 2021, and tightened liquidity conditions.
“The committee also noted the deceleration in the rate of increase in inflation in the last reading,” Dr Addison said.
He said the committee also expected that the macroeconomic framework that would underpin an agreed International Monetary Fund (IMF)-supported programme would present a stronger coordinated monetary and fiscal policy framework that would anchor stability and prevent a wage-price spiral.
“Based on the above assessments, the MPC was of the view that it will be appropriate to pause and observe the impact of the recent monetary policy measures already taken,” he said.
Dr Addison said an assessment of the banking sector’s performance for the first half of 2022 showed robust growth in assets and deposits.
He said total assets of banks grew by 22.8 per cent on a year-on-year basis to GH¢200 billion at the end of last month, compared to the growth of 17.2 per cent at the same period last year.
Total deposits, however, grew at a slower pace by 19.1 per cent to GH¢131.3 billion, relative to the 22.5 per cent growth a year earlier, he said.
The governor said the key financial soundness indicators of the banking industry also remained positive.
“The Capital Adequacy Ratio was 19.4 per cent in June 2022, well above the regulatory minimum of 13 per cent. Core liquid assets to short-term liabilities improved to 30.2 per cent, compared with 27.5 per cent in the previous year.
“The non-performing loans ratio also improved to 14.1 per cent at the end of June 2022, compared with 17 per cent in June 2021, reflecting some moderation in the growth of the stock of non-performing loans, as well as the rebound in credit growth,” he added.
He said the sector’s profit before tax was GH¢4.4 billion, representing a 21.6 per cent annual growth in June 2022, compared to 32.1 per cent in the previous year.
Dr Addison, however, said the recent development in the macro economy might pose some upside risks to the sector’s outlook and would, therefore, require effective supervision and strong risk management by the industry.
He further said credit to the private sector was recovering to the pre-pandemic level, reflecting commercial banks’ portfolio rebalancing.
In year-on-year terms, he said, private sector credit increased significantly by 33.7 per cent in June 2022, compared with 6.8 per cent in the same period of 2021.
“In spite of the sustained price pressures, private sector credit in real terms recorded a three per cent growth. A year ago in June 2021, real private sector credit had contracted by 0.97 per cent,” Dr Addison added.