An Economist and Director of the Institute of Statistical, Social and Economic Research (ISSER), Professor Peter Quartey expects the Monetary Policy Committee (MPC) of the Bank of Ghana to maintain the policy rate which currently stands at 14.5 percent as it commences its 99th MPC meetings today. According to him, an increase in the policy rate will not be in line with the government’s policy of ensuring a lower cost of doing business for private sector actors.
“So all of these together, I personally do not expect a change in the policy rate”.
Speaking ahead of the start of the MPC meetings, Prof. Quartey told The Vaultz News that there are only two options left for the government to explore. These are either to reduce or maintain the policy rate. He however, noted that an increase in the policy rate is not an option for now. This, he said, is because the economy has not experienced any major shock to trigger an increment in the policy rate. As a result, an increase in the policy rate may run counter to the government’s policy of ensuring private sector development.
Major factors to consider
“So, what will the bank look at? Inflation and inflationary expectations, exchange rate movements, the level of economic activity. These are the critical factors that they will look at”.
Meanwhile, Prof. Quartey indicated that inflation is currently not a major problem that will force the MPC to increase the policy rate. Nonetheless, Prof admitted that there is some level of expectation that inflation might increase in the near term. He attributed this to the proposed energy levies highlighted in the 2021 budget statement.
Yet, to him, that will not be so significant to warrant a rise in general price levels in the country. He indicated that the rise in fuel prices will affect households and individuals. This is because transportation accounts for roughly 15 percent of a household’s expenditure.
Also, the Bank of Ghana will consider exchange rate movements during its meetings. The focus will then be as to whether there is going to be depreciation or an appreciation of the cedi.
“A major depreciation, I will say, No. And then the economy – Are we going to see a boom in economic activity?”
The ISSER Boss indicted that there is going to be an improvement in the level of economic activity this year as there are already signs of a rebound. However, he indicated that this will be gradual and the momentum will not be instant to warrant an upward revision of the policy rate.
Foreign-denominated debt
Furthermore, Professor Quartey stated that another factor that may force the MPC to maintain the policy rate is the foreign-denominated debt. That is, foreign investors who hold local bonds. He cautioned that if the Bank of Ghana reduces the policy rate further, these investors will exit the market. And that will result in capital flight. The ISSER Boss recalled that a similar incident occurred somewhere around March and April last year when the Bank reduced the policy rate. He added that policy rate cuts affect the exchange, and so the Bank of Ghana will also consider that factor before taking a stance.
The MPC Meetings
The Monetary Policy Committee (MPC) of the Bank of Ghana will commence its 99th meeting today, Wednesday, March 17, 2021, to review the current development in the Ghanaian economy. The meetings will end on Friday, March 19, 2021, and the final decision will be announced on Monday, March 22, 2021. Currently, the Bank of Ghana has pegged its monetary policy rate at 14.5% since March 2020.
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