117th MPC meetings starts tomorrow — All attention on interest rate
The Monetary Policy Committee (MPC) of the Bank of Ghana begins its 117th Regular Meeting from tomorrow, March 20, 2024, to Friday, to review developments in the economy.
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The meetings will conclude with a press conference on Monday, March 25, 2024, to announce the decision of the committee.
A major consideration will be the monetary policy rate which currently stands at 29% having been reduced by 100 basis points from 30 per cent since the start of the year.
The premise behind the marginal reduction in the policy rate was based on two key developments; the country’s external buffers and inflation.
External buffers
The central bank said the country’s external buffers had increased, providing support for exchange rate stability.
Improved forex inflows from the International Monetary Fund External Credit Facility (IMF-ECF) disbursements, receipt of the cocoa syndicated loan, and expected funding from the World Bank’s Development Policy Operations were expected to improve foreign exchange inflows.
In addition, the bank said its gold for reserve programme, repatriation of foreign exchange from the mining and oil companies, and reduction in debt service payments would further support reserve build-up and improve the external sector outlook.
Inflation
Headline inflation declined sharply by more than 30 percentage points in the course of 2023.
It said several factors supported the disinflation process, namely the tightening monetary policy stance throughout 2023, favourable international crude oil prices which led to stable ex-pump prices and transportation costs and relative stability in the exchange rate.
It said the latest forecast at the time suggested that the disinflation process would continue, and headline inflation was expected to ease to around 13-17% by the end of 2024, before gradually trending back to within the medium-term target range of six-10 per cent by 2025.
Mixed developments
There are mixed developments globally and within the economy since the last meeting of the MPC.
As at January 9, this year, cocoa prices hovered around $4,137 per metric tonne (January 8) but that has more than doubled since then. For instance, the cash crop and one of the country’s major source of foreign exchange, rose sharply to $8, 409 per metric tonne (March 18).
On the other hand, oil prices have increased from $76.62 in January to about $85.78 as at yesterday, Monday, March 18.
Gold which stood at an average of $2,026.93 in January, now stands at $2,164.30 as at yesterday, March 18.
Inflation for the month of February dropped slightly by .3% from 23.5% in January to 23.2%.
Again, there is up to $300 million the World Bank is expected to release in due course to strengthen macroeconomic stability and support resilient economic growth. The amount will also help shore up the country’s foreign reserves.
The cedi is losing value to the major foreign trading currencies particularly, the United States Dollar, having shed about 7% of its value since the beginning of the year to date.
With these mixed developments, it will be up to the MPC to tell how the turn of events will impact the country’s foreign reserves and it’s overall effect on the policy rate in the end.
Expectations
There is growing calls from business associations on the MPC to further reduce the policy rate from the present 29 per cent to at least 27 per cent.
The associations are of the view that, such a move will help reduce the cost of lending which is currently at an average of 30.45% according to the Ghana Reference Rate. The Ghana Association of Bankers (GAB) announced the new rate which took effect from March 6.
Much as the developments within the economy are mixed with global uncertainties still lingering, the MPC is likely to stay the policy rate at 29% while it monitors internal and external developments.
