The BoG will review its inflation target as the key rate reaches its lowest level in 6 years

Company News on Tuesday, January 29, 2019

Source: thebftonline.com

2019-01-29

Mr. Ernest Addison, Governor of the Bank of Ghana, said the Monetary Policy Committee was considering the possibility of revising the medium-term inflation target of the bank, which currently stands at 8 ± 2. %.

In announcing a new key rate, the governor said that, after bringing inflation from 15.4% at the end of 2016 to 9.4% in December 2018, within the limits of its target, the central bank thought that She could do better. It therefore intends to reduce this objective.

Data from the Ghana Statistical Service (GSS) show that the 9.4% inflation recorded last December is the sixth consecutive month of single-digit inflation – which means that the The average annual change in prices of goods and services has remained below 10% since last July. year, well in the range of the central bank.

In a speech yesterday at the BoG office in Accra, Dr. Ernest Addison said the bank was already looking beyond its current target.

"I think we all agree that maybe the time has come to revamp the new central point; if the 8 ± 2% should remain the next target of average inflation or if we could further reduce it to a lower inflation rate.

"Our trading partners have inflation rates below 5% and close to 2%. If you have higher inflation, just by the differential of inflation, you lose your competitiveness. Yes, it may be necessary to rethink the medium-term inflation target that we set ourselves in order to maintain the competitiveness of the Ghanaian economy, said the governor.

Mr. Addison further attributed the Monetary Policy Committee's decision to reduce the policy interest rate by 100 basis points to 16%, due to a moderate inflation rate, which does not pose an immediate challenge to the forecasts. of the BoG.

"The Committee noted that inflation had steadily decreased from 15.4% at the end of 2016 to 11.8% in 2017, and then to 9.4% in 2018, largely due to the Non-food inflation. The Bank's latest forecasts indicate that inflation will remain within the target range of 8 ± 2% over the forecast horizon, except in the event of an unexpected shock.

"The Committee noted that the immediate risks to the trajectory of disinflation are well under control and that current conditions can translate some of the gains from macroeconomic stability into the economy. In these circumstances, the Committee decided to reduce the key rate by 100 basis points to 16%, "added the governor.

He added that the disinflation process was supported by the relatively restrictive monetary policy maintained throughout the year, which could contain the underlying inflationary pressures, all of the Bank 's measures in terms of inflation. underlying inflation going in the direction of a general easing inflation expectations entrenched consumers and businesses.

The new key rate is the lowest for almost six years – that is to say in May 2013, while it stood at 16%. Although lending rates remain close to 20, the Governor hopes that lending rates will eventually decline, given the easing of the policy rate.

"The weighted average interbank lending rate – that is, the rate at which commercial banks lend themselves to each other – declined to 16.1% in December 2018, against 19.3% for the same period last year, reflecting the monetary policy stance. Similarly, average bank lending rates also fell from 29.3% to 26.9% over the same period, "said Dr. Addison.