Moody’s: BoG policy rate cut is credit positive for banks

The rating agency Moody’s says the 150 basis points policy rate cut by the Bank of Ghana last week is credit positive for the country’s banks.

Moody’s says the cut which exceeded market expectations of a 100-basis-point reduction will reduce their bank’s asset risks, which will outweigh the loss in profitability from lower interest income.

“Also, the rate cut signals abating inflationary pressures, indicating a gradually improving operating environment,” it added.

The Monetary Policy Committee of the Bank on Monday, July 24, 2017, announced a reduction in the policy rate by 150 basis points to 21 per cent from 22.5 per cent, citing lower risk to inflation and growth.

“The disinflation process is still ongoing and this trend is likely to continue all through till the end of the third quarter,” Dr Ernest Addison, the Governor of the Bank of Ghana, told a press conference.

“Barring any unanticipated shocks, the current stance of monetary policy and expected stability in the exchange rate should ensure price stability.

“In the outlook, expectations are for the observed decline in headline inflation to continue and converge towards the medium-term target of 8±2 per cent in 2018,” he added.

Moody’s notes that since November 2016, the central bank has cut the monetary policy rate by five percentage points from a peak of 26 per cent.