From now till, at least, the next two-and-a-half months, interest on loans will remain virtually unchanged, following the maintenance of the policy rate (the rate at which the Bank of Ghana lends to commercial banks) at 14.5%

The central bank took this decision mindful of the recent surge in inflation amidst the coronavirus pandemic.

It will also want to keep the current money in circulation with gradual increments if necessary.  

The unchanged policy rate is the first, since the regulator reduced the base lending rate by 150 basis points in February to contain the COVID-19 pandemic.

According to the Governor of the Bank of Ghana, Dr Ernest Addison, the decision was taken based on inflationary outlook and growth.

“The recent rise in inflation is projected to peak in the second quarter and begin to return to the disinflation path in subsequent quarters with inflation settling within the medium-term target band by the end of the year. On the growth outlook, baseline projections show a sharp downturn in GDP growth with the economy operating below capacity in the medium-term”, he said

According to the monetary policy report, retail sales picked up in March 2020 due to panic buying which preceded the partial lockdown, while consumption, proxied by Domestic VAT receipts, dipped.

“The slow conditions in economic activity is reflected in port activities and a sharp decline in tourist arrivals. The slowdown also affected the private sector’s contributions to social security.

The nation also recorded a budget deficit equivalent to 3.4 per cent of Gross Domestic Product compared with a deficit target of 1.9 per cent of GDP the same time last year.

According to Dr Addison who also doubles as Chairman of the MPC, the larger deficit is explained by shortfalls in tax revenues — on the back of shortfalls in international trade taxes, taxes on goods and services and taxes on income and property in response to unfavourable external and domestic conditions.

Additionally, a higher pace of spending, which included some unbudgeted COVID-19-related expenditure, also contributed to the large budget deficit.