BoG discloses the status of banks and interest rates in the country

BoG discloses the status of banks and interest rates in the country

The Bank of Ghana (BoG) has disclosed the status of banks and interest rates in the country. The disclosure by BoG was made at a press briefing. The press briefing is meant to inform the general public about the Monetary Policy Committee (MPC) meeting.

May 2023 Monetary Policy Meetings

The MPC meeting is a bi-monthly meeting to examine the health of the general economy. The meeting ends with monetary measures to manage the general economy. The meeting takes place over three (3) days. The meeting usually ends on Fridays. However, the press briefing takes place on Mondays.

This month’s meeting started Wednesday 17th May to Friday 19th May 2023. The last time the meeting took place was in March 2023.

Composition of the MPC

The members of the Monetary Policy Committee are:
· The Governor of the Bank of Ghana,
· the First and Second Deputy Governors of the central bank,
· the Head of the Department responsible in charge of the economic research unit of the Bank,
· the Head of the Department responsible in charge of treasury operations of the Bank, and
· two external members – They are not employees of the Bank. They are appointed by the board of the central bank and they must possess knowledge and experience, which is relevant to the functions of the Monetary Policy Committee.

The focus of the MPC meeting
According to the governor of the central bank, this month’s meeting takes a critical look at the impact of the Domestic Debt Exchange that was carried out during the first quarter of the year.

The meeting also looked at the outlook for inflation and growth in the country.

Global economic considerations
According to the governor, the following was observed on the global economic front.
1. There are many uncertainties in the global economy
2. Reopening of the Chinese economy
3. Downside risk remain which continue to drag the economy of individual countries
4. Difficult policy trade-off in the global economy
5. Geopolitical tensions across the globe
6. International Monetary Fund (IMF) global growth projection of 2.8% as compared to 3.4% in the same period last year
7. Tight labor markets
8. Strong wage growth

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Domestic considerations
1. Price development in the country points to inflation pressures that continue easing. This reflects in the consecutive decline in headline inflation.

Year-on-year inflation at the end of December 2022 was 54.1%. This has eased to 53.6%, 52.8%, 45.0%, and 41.2% respectively.

2. The exchange rate of the local currency, Ghanaian cedi, continues to be relatively stable
3. Credit to the private sector continues to decline. In nominal terms, private sector credit declined by 19.8% in April 2023. The nominal decline of private sector credit in 2022 was 26.5%

In real terms, the decline of private sector credit is 15.2% as of April 2023. This compares with the year 2022 decline of 2.4% in real terms.

The reduction in the private sector credit was considered to be consistent with the Bank of Ghana’s tight monetary policy stance which was reflected in the consistent hikes in the monetary policy rate.

4. The interest rates in the country also continue to rise. The coupon rates on both 91-day and 182-day Treasury Bill are 19.67% and 22.29% respectively as of April 2023. However, the rates were 16.22% and 16.72% respectively as of April 2022.

The rates for the 364-day Treasury Bill were 27.04% and 18.93% for the years 2023 and 2022 respectively.

5. Audited accounts of banks in the country have shown that banks took a cumulative loss of 31.66% in 2023 and a loss of 21.6%. The status of banks and interest rates in the country are not best presently

The losses were due to heavy impairment (default) on loans to customers. Also, rising operating costs for banks increased the cost of doing business sharply for the banks. And finally, the Domestic Debt Exchange (DDE) also contributed to the loss that banks have to suffer due to the huge exposure of banks to the government of Ghana’s bonds

6. The is a heavy balance of payment deficit for the government. The balance of payment deficit for the first quarter of this year is $354 million as compared to $934 million

7. The country also has issues with international gross reserves. The international gross reserve was $5.1 billion as of March 2023. This amount translates to 2.4 months of import cover. The international gross reserve as of December 2022 was $6.2 billion, an equivalent of 2.7 months of import cover.

Interestingly, the first tranche of the IMF bailout could not make any significant change to this economic metric. Upon the approval and release of a $604 million bailout by the International Monetary Fund to the country, the international gross reserve rose marginally to $5.7 billion, which is an equivalent of 2.6 months of import cover

The new monetary policy rate

The monetary policy interest rate is an interest rate that central banks set to influence the main monetary variables in the economy. Some of the monetary variables that the rate seeks to influence are consumer prices (inflation), exchange rates, and credit expansion, among others.

After reviewing all the factors mentioned above, the Bank of Ghana decided to maintain the Monetary Policy rate at 29.5%. The last time the rate was moved to the current 29.5% was in March 2023.

The next Monetary Policy Committee (MPC) meeting is scheduled for the 19th to 21st of July 2023. The press conference will be held on the 24th of July 2023

Source: Educativenews.com

Reference: bog.gov.gh