Economists want policy rate maintained
Dr Ernest Addison — BoG Governor

Economists want policy rate maintained

AHEAD of the presentation of a report from the meetings of the Monetary Policy Committee of the Bank of Ghana next Monday, some economists are calling on the central bank not to reduce the benchmark policy rate but stay it at the current level of 29 per cent.


They argued that considering the lingering inflationary pressures, it would not be prudent to reduce the rate because among other things, any such move could lead to capital flight particularly in these unfavourable times.

There are fears that, with a few months to the crucial general elections where the stakes are high for the ruling government which is bent on retaining power, there could be the temptation to relax the tight monetary policy to please the business community at the expense of the medium to long-term implications of such actions on the economy.

Some have also argued that the central bank deliberately maintains a higher policy rate in other to make profit, a stance the bank has vehemently rejected.

IMF caution

But the call by the economists matches an earlier caution by the International Monetary Fund (IMF) which asked central banks which still have inflation higher than their target bands to maintain a tight monetary policy.

Ghana’s current inflation rate of 25 per cent is twice higher than the central banks’ annual inflation target band of between 6 per cent-10 per cent.

The IMF had maintained that although inflation in such countries might have been on a consistent decline in recent months, it was still too early to relax their monetary policy rates.

It said such countries might pause on increasing the policy rate, but added that it would be too early to reduce them.

No increase

Meanwhile, the economists also held the view that it would not be the best at this time to increase the rate in view of its consequences on the cost of borrowing.

The cost of borrowing since March of this year has been hovering at an average rate of 32 per cent, a development which has forced many a business to either fold up or stagnate as far as growth is concerned.

Already, going into its third Monetary Policy Committee meeting for the year, the BoG has come under some pressure from the business community to further reduce the policy rate to allow businesses to have access to funds at cheaper rates.

Commercial banks often determine their interest rates on the policy rate and, therefore, the more the monetary policy managers keep a tight policy, the higher the interest rates, a phenomenon which businesses dread.


Giving further insights into the call for the BoG to stay the policy rate and not to reduce it, the Director of the Institute of Statistical and Social Research (ISSER), Professor Peter Quartey, said not reducing the policy rate but maintaining it at the current rate of 29 per cent would be the best decision for the country.

According to him, with the lingering inflationary pressures, reducing the rates would spell serious consequences for the economy and worsen the present economic conditions.

He said it could also lead to capital flights, a phenomenon which was witnessed in the month of April.

On the other hand, he said increasing the rate would worsen the plight of businesses since the consequence on cost of borrowing would be too much for them to bear.

He also noted the implication of such a move on the government’s growth projections, saying “once businesses stagnate, growth will be affected and we do not want that at this time”.

“For me, considering the two basic scenarios, the best decision for the MPC would be to maintain a middle ground for now”.

Inflation trajectory

In response to the rising inflation, the Monetary Policy Committee of the Bank of Ghana has kept a tight monetary policy stance by consistently increasing the policy rate until it hit the summit of 30 per cent.

With inflation easing in 2023, reducing to 23.2 per cent in December 2023, the central bank, for the first time in two years, reduced the policy rate to 29 per cent in January 2024 and has since maintained it despite pressure from the business community for it to do better.


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