Professor Peter Quartey, an Economist and Director of the Institute of Statistical, Social and Economic Research (ISSER), has predicted an upward adjustment of the policy rate as the Monetary Policy Committee (MPC) of the Bank of Ghana climaxes its 105th regular meetings today.
Professor Peter Quartey said it becomes necessary to increase the policy rate so as to attract investors to hold the country’s debt. The ISSER Boss said the MPC looks at key indicators such as the exchange rate and inflation expectations which are currently pointing towards an upward adjustment of the policy rate.
“At the moment, even the rate of inflation is higher than the policy rate and what it means is that, assuming the policy rate is how much return you get on your investment, then it means the real return on your investment is negative. It shouldn’t be the case. This points towards the need to increase the policy in order to attract people to invest here. Aside unexpected happenings, I expect the policy rate to be adjusted upwards marginally, at least 100 basis points or more, to 250 basis points”.Professor Peter Quartey
The ongoing Russian invasion of Ukraine has its impacts tickling down to the global economy, with the immediate effects being a rise in average prices of petroleum products and food prices, given the role the two factions play in the global stage. Prof. Quartey, told the Valutz News that in order to tame inflation which is currently standing at 15.7% at End-February 2022, government should consider reducing some of the taxes on petroleum products.
“One of the interventions will be to reduce the taxes on petroleum products. The sanitation Levy and stabilization levy on petrol; we have to reduce them in order to cushion Ghanaians or consumers. That will be one immediate step to take”.Professor Peter Quartey
Need to restructure expenditures on some flagship programs
Another suggestion the ISSER Boss made, was for government to make available foreign exchange at some affordable rate or some potential exchange rate to help absorb some of the fluctuations in the forex market. He also touched on the need for government to review and restructure expenditures on some of its flagship programs. Prof. Quartey said government can save some money and move that savings into developing other areas or meeting other important needs in these critical moments.
“They can save money and move that savings into areas that will support the consumers or the ordinary Ghanaian or worker. Free SHS for instance, we can say that government has been able to support, everything has been free all this while. Now, we will only pay tuition but then, if you want to go to a boarding facility, you will pay for the boarding because times have changed”.Professor Peter Quartey
The ISSER Boss said this is the time government must have such open conversations with Ghanaians so that once they buy into some of these proposals “We can trim down some of these expenditures; it’s not like you are scrapping completely, once things improve, we would restore them”.
Prof. Quartey was speaking ahead of the Monetary Policy Committee’s press conference later today, Monday, March 21, 2022, in which it will announce its decision after reviewing developments in the domestic and the global economies during its 105th regular meetings held last week. Meanwhile, the Institute of Economic Affairs has also urged the MPC to hike the policy rate by 200 basis points from 14.5% to 16.5% to stem inflation.