Ghana: BoG cancels Covid-19 relief to respond

challenges facing the economy

The Bank of Ghana (BOG) has canceled three reliefs it had introduced to protect banks and the economy from the impact of the coronavirus disease (COVID)-19 pandemic.

These are increasing the cash reserve ratio to 12%, resetting the capital cushion to pre-pandemic levels of 3% to bring the capital adequacy ratio to a total of 13%, and of the granting of a loan rate in the Other Exceptionally Mentioned Loans (OLEM) category is reset to pre-pandemic levels of 10%.

Starting from April, the stimulus package that the BoG introduced in the heat of the coronavirus in 2021 for universal banks to make capital available and reduce the cost of capital as part of the policies to support the economy, would cease.

BoG Governor Dr Ernest Addison made the announcement at the BoG Monetary Policy Committee press conference on Monday, and said the move was aimed at stemming rising inflation and depreciation of the currency. Cedi.

The MPC held its 105th meeting last week to deliberate on recent macroeconomic developments and assess emerging risks to the outlook for inflation and growth. He also deliberated on recent global and national developments and their impact on macroeconomic conditions since the last meeting.

Since the start of the year, the cedi has come under intense pressure, in part due to downgrades of Ghana’s sovereign credit rating by Fitch and Moody’s and the exit of some foreign investors from domestic securities.

This, the BoG has “caused the exchange rate to rise above its long-term trend”.

Therefore, the government announced its intention to inject $2 billion into the economy to strengthen the Cedi.

Dr Addison said canceling the stimulus package would help contain inflation and strengthen the Cedi to bring stability to the economy.

Headline inflation has risen sharply to 15.7% in February 2022, and headline inflation and core inflation are well above the upper limit of the medium-term target range.

Specifically, the BoG said rising food prices, upward adjustments in oil prices and its effect on transport fares, and the pass-through of exchange rate depreciation have pushed up inflation. to 15.7% at the end of February 2022, i.e. 5.7 percentage points outside the average. term target band.

According to the BoG, food inflation jumped sharply from 12.8% in December 2021 to 17.4% in February 2022, while non-food inflation rose from 12.5% ​​to 14.5% during the same period.

The governor further said that withdrawing the stimulus package would help remove excess capital from the system that was fueling inflation.

Asked whether the decision to cancel the stimulus package would dampen growth at a time when the economy had not recovered from the shocks of the coronavirus pandemic, the governor said “there is an effect to every medicine you take”.

He said it was better to sacrifice growth for a while to curb rising inflation, pointing out that growth could be achieved if there was stability in the economy.

“The combination of tighter global financing conditions, strong exchange rate pressures and high inflation poses some policy challenges. Uncertainty surrounding price developments and their impact on economic activity is weighing on the business and consumer confidence,” the governor said.

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