The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has announced that it has rescheduled the commencement of its 105th regular meetings to review recent developments in the global and Ghanaian economies.
According to a notice released by the Central Bank, “The 105th Monetary Policy Committee Meetings, originally planned to take place from March 23 – 25, 2022, have been rescheduled a week earlier to Wednesday, March 16, 2022 to Friday, March 18, 2022”.
In line with the change of date, the meetings will now conclude with a press conference on Monday, March 21, 2022 to announce the decision of the Committee. However, the Bank of Ghana did not give any specific reasons for the rescheduling of its regular meetings by the Committee in charge of making monetary policy decisions in the country.
Bank of Ghana’s MPC meets every two months to review developments in the economy and after every review, there are two sure outcomes; either the policy rate is maintained or changed. Nevertheless, the decision hinges very much on the prevailing economic conditions in the country as well as other global dynamics that have direct or indirect effects on the Ghanaian economy.
Reductions in the policy rate post-COVID
The Monetary Policy Committee took the bull by the horn in its 100th meetings in May last year by shockingly cutting the policy rate by 100 basis points to 13.5 percent from 14.5 percent. The reduction of the policy rate in May was the first time the BoG reduced its policy rate in more than a year.
It is worth noting that prior to cutting the policy rate in May 2021, the BoG had reduced the rate by 150 basis points in March 2020 as part of its monetary policy measures to cushion the economy that was struggling to get itself out of the woods at a time when the COVID-19 was at its peak. During that time, businesses shut down, many workers were laid off and some were asked to work from home and so, such a policy was needed.
The reduction in the policy rate in May 2021 was also to fast-track and consolidate the uptick of economic activity in the country. The BoG continues to emphasize that its high frequency economic indicators are improving gradually, signaling a rebound of the economy which recorded a 6.6% expansion in the third quarter of 2021.
The Monetary Policy Rate is of keen interest to businesses, as it determines the rate at which the BoG lends to commercial banks. More importantly, this rate is expected to influence the interest rate on loans offered to customers.
Call for a reduction in lending rates
However, the responsiveness of the policy rate to the lending rate remains a major bone of contention as businesses have shared their sentiments about how the policy rate does not often reflect on the interest rate on loans as expected. As such, the Ghana Union of Traders Association (GUTA) has always been calling for a reduction in the interest rates.
In response, President Nana Akufo-Addo, last year, charged the new board of the Bank of Ghana to interrogate the issue of high interest rates and look for a solution to the problem to enhance the competitiveness of the private sector.
The Institute of Economic Affairs, however, blamed the government, the Bank of Ghana, and the Banks for the high lending rates in the country. Currently, the average lending rate stands at 20.04% as of December 2021, a marginal decline from 20.17% in November 2021.
Major variables that may impact the MPC’s decision
Inflation and inflationary expectations, exchange rate movements, and the level of economic activity in the country are critical factors that the MPC considers before making a decision on the policy rate.
Currently, inflation and inflationary expectations remain high amid rising prices at the pump, driven mainly by rising crude oil prices on the global market as economies re-open and supply chains restored. The risk of inflation is heightened by the ongoing unrest in Russia and Ukraine. Currently, national year-on-year inflation stands at 15.7% at the end of February 2022 and may increase even further in the coming months.
Meanwhile, the volatilities within the exchange rate and rising debt levels also pose major risks to the country’s recovery and will therefore, feature prominently in the discussions of the MPC. Currently, the policy rate stands at 14.5% after it was increased in November last year due to rising inflationary risks. Now, all indicators point to a possible monetary policy tightening which may drag the recovery of the economy.