BoG Sees Room for ‘Policy Rate Cut’

The Bank of Ghana has additional space to loosen policy thanks to the global move toward lower interest rates, as long as inflation slows, according to Governor Ernest Addison.

“We are on a good disinflation path,” Addison said Thursday in an interview with Bloomberg TV at the World Economic Forum on Africa in Cape Town. “Inflation has continued to come down and our policy rates would follow that path. If global rates were increasing, that would’ve been a more difficult scenario.”

While the currency is still down 9.7% against the dollar since the start of the year, the pass-through of the exchange rate to consumer-price growth has decreased, said Addison. This is partly due to more competition in the market, where some retailers don’t pass on all their cost increases to customers, he said.

The central bank targets inflation in a band of 6% to 10%. Ideally, the MPC wants the rate in the middle of that range, Addison said. Price growth quickened to 9.4% in July, but the central bank would like it to slow to 8% over the medium term, he said.

“For us, the decisions on policy would depend on us seeing inflation moving down,” he said.

Banking Cleanup

The central bank announced last month it had revoked the licenses of 15 savings and loans companies and eight finance houses among Ghana’s second-tier lenders. The move concluded a cleanup of the finance industry that also saw the number of banks reduced by a third to 23.

While an industry lobby estimated as many as 4,000 jobs may be lost among second-tier lenders alone, Addison said the potential impact had been exaggerated and that the net employment loss would be about 3,000 across the financial sector.

The restructuring will ultimately lead to stronger banks, which will translate into faster economic growth and more employment creation, he said. The International Monetary Fund projected in April that Ghana’s economy will expand 8.8% this year after growing 5.6% in 2018.

“We expect that in the medium term, the economy will continue to grow at about 7%,” Addison said. “The banking sector has a big role to play in terms of its ability to help sustain these growth rates.”