The Monetary Policy Committee during its 94^th Regular Meetings to review developments in the economy on Friday, May 15^th 2020 announced its decision to maintain the policy rate at 14.50%. The COVID-19 pandemic has disrupted many economies around the world resulting in measures by governments and central banks to deal with the economic disruptions. A number of central banks have cut policy rates while making available stimulus packages in attempt to stabilize the economy. It therefore came as a surprise the decision of the Monetary Policy Committee to maintain the policy rate at 14.50% citing the balance of risk to inflation and growth as reasons for the decision.

In response to the economic challenges due to the pandemic, governments and central banks around the world have instituted measures to lessen the burden on companies and households. The US Fed has made available US$ 1.5 trillion to businesses and households while cutting the policy rate by 150bps in March 2020. The Government of Ghana has instituted several measures aimed at minimizing the negative impact of the pandemic on the economy. The government has established a GHS 1bn Coronavirus Alleviation Program Business Support Scheme aimed at helping businesses cope with the effect of the virus. The government has also made available free water for all citizens for three months which is estimated to cost about GHS 300M, free electricity for lifeline customers and 50% discount for all other customers which is also expected to cost the government about GHS 1bn. In addition, the government is giving three months tax holidays to frontline health workers.

Additionally the Bank of Ghana has instituted a GHS 10bn Asset Purchase Program at the monetary policy rate to support the government with revenue shortfall arising from COVID-19.  The Bank of Ghana purchased GHS5.5bn of the COVID-19 relief bond from the Government in May 2020.

With the various measure instituted by the government to contain the situation, we expect the government to continue burrowing through the issuance of treasury securities. However we expect interest rates on government securities to decline marginally in the short term. The upcoming 3-year bond is expected to settle slightly below the previous interest rate of 20.75%. We also expect to see selling pressures on the equities market fueled by the uncertainties in the economy.  This will sustain the downward trends in GSE-CI and GSE-FI in the short term.