The Monetary Policy Committee(MPC) of the Bank of Ghana (BoG) has scheduled its 110th meeting to commence today, Tuesday, January 24, 2023.
The Meeting will be chaired by the Governor of the bank, Dr. Ernest Addison and is expected to review recent developments in the Ghanaian economy in the last two and half months.
It is yet to be known whether the committee will maintain the policy rate at the prevailing rate or increase it, following the recent happenings in the economy.
Despite the uncertainty about the outcomes on the policy rate from the yet to commence meeting, it is highly probable government may decide to increase the rate on the market in order to raise more funds to address its prevalent challenges amongst which are its high accumulated debt, weakening of the local currency and price instability.
From an economical perspective, increased monetary policy rate results in an appreciation of currency, as foreign investors seek higher returns and increase their demand for the currency.
With a key challenge for the government now being how to deal with the poor performance of the cedi, it is possible the monetary policy rate will be hiked.
Moreover, the Ghanaian economy now is cash strapped and in dire need of funds to revive, hence, government’s decision to go to the International Monetary Fund (IMF) for US$3 billion loan support.
This being a dire need of government therefore, the committee from the yet to commence meeting may decide on contractionary monetary policy to draw more funds to deal with the incumbent issues on Ghana’s financial desk.
“It usually rises (monetary policy hikes) when the central bank tightens by soaking up reserves. The central bank expects that changes in the policy rate will feed through to all the other interest rates that are relevant in the economy.”IMF
The other parameters that are likely to be affected by a change in the Monetary Policy Rate (MPR) include the exchange rate, consumer prices, lending rate.
Consumers Are Likely To Be Disadvantaged By MPR Hikes
The central bank is likely to benefit from increase in the policy rate as it may have a good outlook on the Ghanaian cedi as explained earlier with more to keep in its reserves, however, may turn out disadvantageous to the consumer, that is individuals and commercial banks, who will have to suffer hikes in prices of commodities and lending rate hikes.
Looking at the current situation of the economy and troubled state of the citizenry because of being taxed more, haven to spend more to buy just few items on the market and enjoying some services from their service providers, spending more to buy fuel, just to mention but a few, it will be of great imbalance and unfairness to further increase prices associated with their consumption as well as the lending rate.
Increasing the lending rate will mean favoring the rich and doing a great injustice to the poor and financially handicapped in the country.
In 2022, the Bank of Ghana (BoG) consistently raised its monetary policy rate (MPR) in response to increasing consumer price inflation, which was driven up by cedi depreciation and the loss of foreign investment capital.
By the end of the year, consumer price inflation had reached a four-decade high of 54.2%, and core inflation, which excludes energy prices. Public utility tariffs had also risen significantly.
As a result, the BoG, in an effort to curb inflation, continued to raise the MPR, increasing it from 14.5% in January to 27% in November.
The analysis reveals that the Bank of Ghana plans to increase its key benchmark interest rate by more than 150 basis points, from 27% to nearly 28.5%, in an effort to control rising inflation and stabilize the exchange rate market, especially with the continuous depreciation of the cedi.
It will therefore come as no big surprise when the committee comes out with that announcement by Monday, January 30, Graphic Business said.
The MPC meeting commences today and will continue up to Friday, January 27, 2023.