Weekly Insights – Ghana – 28/07/2017 – Nimed Capital Limited THOUGHT OF THE WEEK

September 20, 2020 By: Nimed Capital0 comments

THOUGHT OF THE WEEK

Monetary Policy Committee Cuts Policy Rate by 150bps

The policy rate has been cut by 150bps to 21.0% on the back of reducing inflation and improving macroeconomic environment. Consumer inflation has been on a downward trend, currently standing at 12.1% in June 2017. The downward trend in inflation came from lower food and petroleum prices as well as relative stability of the Cedi against the US Dollar. The narrowing trade deficits and increased foreign exchange inflows from foreign investors into the fixed income market, equally contributed to the stable environment.

There are signals that economic activity is improving in Ghana as GDP grew by 6.6% in Q1 2017 compared to 4.4% in Q1 2016. BoG’s leading indicator of economic activity, the Composite Index of economic activity recorded a year change of 26.33%. In addition, there have been an increase of credit allocation to the private sector to expand production and create additional jobs. This has resulted in an increased export and the higher tax receipts to government.

Outlook

It is clear that the ongoing policy easing cycle aimed at reducing interest rates to enhance credit to the private sector in a bid to stimulate economic activity is working. However, while lending rates have reduced from a peak of 33.0% in February to 30.8% in June, they are still high for a lot of businesses.

However, moving forward, we expect further declines in the policy rate owning to a stable currency and a decline in inflation. More also, we expect the development in the treasury market to be the key driver of commercial lending rates, as more banks shift funds from low interest government bonds to high yield interest loans.

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