CORONANOMICS : BoG takes swift action to keep economy on front foot

March 20, 2020 / Comments (0)

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  • Cuts policy rates by 150 basis points to 14.5 percent
  • Up to GH¢100 MoMo transfer is free
  • MoMo thresholds shoot up
  • Bank envisages GDP growth dropping to 2.5%

The Central Bank has taken a raft of actions, chief amongst them is the reduction of its Monetary Policy Rate (MPR) by 150 basis points from 16 percent to 14.5 percent, in a move to cushion the economy as it envisages GDP growth to be impacted negatively to as low as 2.5 percent due to the coronavirus pandemic.

A first reduction since January 2019, the move is also expected to tamper and contain the impact the pandemic is having on foreign inflows, tax revenues and others as a result of the restrictions on imports and the sharp drop of crude oil prices.

“On the domestic economy, the bank’s internal assessment shows that the pandemic could impact Ghana through a number of channels. First, the dampened global demand could significantly impact Ghana’s crude oil export earnings with major implications for foreign inflows and tax revenues.

There is also a likelihood of export restrictions from advanced economies and other emerging market economies which could create supply chain shortages for Ghanaian businesses, with significant impact on imports of intermediate and capital goods, as well as consumption goods.

This is expected to negatively affect inputs in the domestic production channels with severe consequences for growth and tax revenues which could become more pronounced by the second or third quarter. In addition, crude oil prices have declined sharply to historically low levels, and already creating negative shocks on exports, albeit with some offsetting effects from rising gold and cocoa prices,” a release from the Central Bank noted.

Already, the latest inflation reading for February 2020 is estimated at 7.8 percent, unchanged from January 2020. The forecast for inflation is expected to remain within the target band for the next quarter.

Digital payment enhancements

Other measures the Bank of Ghana has taken include an agreement with banks and mobile network operators on measures to facilitate more efficient payments and promote digital forms of payments for the next three months.

First, the all mobile money users can send up to GH¢100 for free (excluding cash out). This includes sending to a recipient on the same network, or another network via the interoperability platform. Also, all mobile phone subscribers are now permitted to use their already existing mobile phone registration details to be on-boarded for Minimum KYC Account.

The Bank of Ghana has also reduced the Primary Reserve Requirement from 10 percent to 8 percent to provide more liquidity to banks to support critical sectors of the economy. “This effectively extends the previous targeted reserves for SMEs under the enterprise credit scheme to all critical sectors.”

Also, the Capital Conservation Buffer (CCB) for banks of 3 percent is reduced to 1.5 percent. This, the regulator noted, is to enable banks provide the needed financial support to the economy. “This effectively reduces the Capital Adequacy Requirement from 13 percent to 11.5 percent.”

The Bank of Ghana has also reduced the provisioning for loans in the Other Loans Especially Mentioned (OLEM) category from 10 percent to 5 percent for all banks and Specialised Deposit-Taking Institutions (SDIs) as a policy response to loans that may experience difficulty in repayments due to slowdown in economic activity.

“Provisioning norms for loans in all other categories are maintained. This should provide capital relief to banks and SDIs in these uncertain times. Loan repayments that are past due for Microfinance Institutions for up to 30 days shall be considered as ‘Current’ as in the case for all other SDIs.”

Source: B&FT Online

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