According to the apex bank, at its sitting the BoB’s Monetary Policy Committee (MPC) decided to reduce the Monetary Policy Rate (MPR) by 25 basis points to 2.15%. The move means that borrowers on variable rate loans such as personal and credit card loans, will enjoy a decrease in their repayments. Equally, consumers intending to take up new loans will also enjoy the new lower interest rates. BOB as the country’s central bank is responsible for the wellbeing of the financial economy, mainly through the use of monetary instruments such as the MPR. The policies are often used to either induce economic activity or curb inflationary pressures in the economy.
The decision to reduce lower the MPR comes at the backdrop of contained inflationary pressures and a slow macroeconomic environment with the economy performing below full capacity. This means that the economy is not fully producing output at its potential. Delivering the decisions of the committee BoB Governor, Cornelius Dekop, said that inflation remained contained within the desired range of 3-6 percent and that risks to inflation remained balanced. This gave the committee a leg room to consider a downward adjustment of the MPR. “Inflation is forecast to remain low but within the objective range in the medium term, averaging 3.6 percent in 2024 and 4.5 percent in 2025. “Similarly, businesses also expect inflation to be within the medium-term objective range; thus, inflation expectations are aligned to the inflation objective (well anchored),” he revealed.
“Therefore, the current state of the economy and the outlook for both domestic and external economic activity provide scope to ease monetary policy.” The MPC revealed that the drop in Gross Domestic Product (GDP) was due to macro-economic pressures that spilled off from the broader global economy as supply and logistical constraints continue to weigh down the efficiency of the economy. “As reported in April, real gross domestic product (GDP) grew by 2.7 percent in 2023, compared to 5.5 percent in 2022. The slowdown was attributable to subdued performance across most sectors of the economy, including the mining sector. “Meanwhile, economic activity remained restrained in the first half of 2024, due to unfavorable global economic conditions and geopolitical events,” the committee revealed.
