BoG to further cut monetary policy rate from coronavirus impact – EIU predicts

The Economist Intelligence Unit (EIU) is predicting a further cut in the central bank's near-term monetary policy rate due to the impact of the Coronavirus pandemic.

According to the UK-based firm's latest country report on Ghana; “With economic activity set to weaken sharply over the coming months, further near-term monetary policy easing is therefore possible.”

Meanwhile, the EIU says it also expects Ghana’s average annual inflation to rise slightly in 2020 but to remain within the Bank of Ghana’s (BoG) target range of 6-10 percent.

“Reflecting on the ongoing currency weakness and upward pressure on the prices of some goods as a result of pandemic-related restrictions and shortages, annual average inflation is expected to edge up in 2020, to 8.7 percent (from 8.5 percent in 2019), despite a sharp downturn in economic activity,” the EIU noted.

Recently, the central bank on March 18, 2020, cut its monetary policy rate by 150 basis points, to 14.5 percent, reflecting its concerns over the outlook for economic growth.

Additionally, the regulator then followed up by plummeting the primary reserve requirement that commercial banks are obliged to maintain from 10 percent to 8 percent, to free up more liquidity for lending.

The EIU also added that the decline in the hydrocarbons sector will have spillover effects on the wider Ghanaian economy, by negatively affecting industrial production, infrastructure investment and supplementary services.

It also identified that private consumption is likely to weaken, at the same time.

Meanwhile, the EIU has projected that Ghana’s economy will contract by 1 percent this year which opposes to the 1.5 percent Gross Domestic Product (GDP) growth rate forecast by the government.