Professor Peter Quartey, an Economist and Director of the Institute of Statistical, Social and Economic Research (ISSER), has expressed that he 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 98th MPC meetings today.
Professor Quartey sharing his expectations on the MPC meeting, told the Vault news that the recent rebound in economic activity in the country is expected to influence the decision of the Bank of Ghana as to whether to maintain, increase, or reduce the policy rate.
The ISSER Boss, however, stated that there haven’t been any changes in all the factors that the MPC takes into consideration before setting the policy rate.
“I think it might be maintained again because an upward adjustment will not be in line with government’s policy of ensuring price stability and low cost of doing business. So, an upward adjustment is not warranted.
“Then also if you look at the fundamentals, all the key variables that they consider in setting the policy rate like the level of economic activity, inflation expectations, exchange rate behavior, we don’t see much change in these variables to warrant adjustments of the policy rate”.
Prof. Quartey
Professor Peter Quartey further explained that it will not be a good decision for the MPC to reduce the policy rate as this may result in capital flights. He is therefore optimistic that the interplay of all these factors will force the Bank of Ghana to maintain the policy rate.
“A downward adjustment might also spark some capital flight because we have some foreigners who hold some of our bonds”.
Prof. Quartey
To back this assertion made by the ISSER Boss, it can be recalled that the Governor of the Bank of Ghana, Dr. Ernest Addison, in the 94th Regular Meetings of the MPC, said;
“The monetary policy rate is the price for the bond purchase and the reason it is at the monetary policy rate is to allow for flexibility, …so over this period, the monetary policy rate will vary. Currently, the monetary policy rate is 14.5%, so that is the price of the bond”.
The Monetary Policy Committee (MPC) of the Bank of Ghana will hold its 98th Regular Meetings from, Tuesday, January 26, 2021, to Friday, January 29, 2021, to review developments in the economy.
The meetings will conclude with a press conference on Monday, February 1, 2021, to announce the decision of the Committee.
It can be recalled that the Bank of Ghana in its 97th Regular Meetings indicated that business confidence has shown a steady and gradual recovery supported by improved company prospects and steady demand for goods and services and a general improvement in economic activity.
The Committee, therefore, decided to maintain the policy rate at 14.5 percent in its last MPC meeting based on the fact that macroeconomic conditions had generally improved relative to conditions at the time of the last MPC meeting in October 2020.
“Global conditions continue to be supportive, domestic inflation is easing, growth prospects are improving, crude oil prices have stabilized, monetary aggregates have expanded but with minimal impact on inflation, the current account deficit is stable, remittances inflow has remained firm, the exchange rate has been stable and reserve buffers continue to remain strong”.
Bank of Ghana
Nonetheless, the bank of Ghana cited budget deficit and the financing needs to support budget implementation, and the uncertainty surrounding the pandemic as some key risk factors to the economic outlook.
The increasing uncertainty surrounding the pandemic in the country recently due to a surge in the number of COVID-19 cases raises concerns of a possible lockdown. Should that happen, the consequences on the economy will be dire. These uncertainties are expected to feature prominently in the current MPC meeting and may impact the final decision taken by the Committee on the policy rate.
