Policy rate to be maintained - Analysts predict ahead of BoG’s announcement

BY: Maxwell Akalaare Adombilla
Dr Ernest Addison — Governor of BoG and Chairman of MPC
Dr Ernest Addison — Governor of BoG and Chairman of MPC

The Bank of Ghana (BoG) will likely stay the course of monetary policy for the last quarter of the year and assure the public that the bank will remain vigilant to inflation, which took its resurgence to a new level in August.

At 9.7 per cent in August, inflation has risen for the third time in a row but analysts say the trend is not risky enough to force further tightening.

They, therefore, expect the Monetary Policy Committee (MPC) of the central bank to use the outcome of its meeting to keep the policy rate at 13.5 per cent and urge the government to improve upon the fiscal situation to help dowse inflationary pressures and speed up the recovery process.

The Governor of BoG and Chairman of MPC, Dr Ernest Addison, is due to address the press today on the conclusions from the three-day meeting that ended on Friday.

Ahead of the press conference, a Professor of Economics, Prof. Peter Quartey, said, but for the impact on capital flight and government auctions of bills, the rate should be reduced to spur growth.

“Ideally, they should reduce it, especially given the concerns with high lending rates, but that is highly unlikely. A reduction can lead to capital flight and serious implications on government borrowing.”

“I do not also see high inflation expectations to warrant an increase in the rate. For me, maintaining the rate will be positive for the economy,” the director of the Institute for Statistical, Social and Economic Research (ISSER) said.


The MPC’s press conference comes at a time when the economy has grown by 3.9 per cent in the second quarter — lower than expected — and credit disbursement has remained sluggish while government borrowing rises.

BoG data showed that business and consumer confidence were mixed, private sector credit contracted by 0.1 per cent and the deficit was 6.1 per cent of gross domestic product (GDP).

The cedi also depreciated by 1.7 per cent to the US dollar as of mid-September while the debt stock rose to GH¢335.9 billion in July, equivalent to 76.4 per cent of GDP.

Teething issues

Beyond inflation, analysts predict that the slower-than-expected recovery in growth and the bearish credit growth amid concerns over lending rates would dominate the press conference to announce the new policy stance.

In the last press statement in July, Dr Addison had said that the sluggish growth in credit, occasioned by pandemic-inspired uncertainties, as well as increased public borrowing and low revenue outturn risked undermining the recovery and the fiscal consolidation processes.

The Governor said while the crowding-out effect continued to keep the credit-to-GDP gap below the long-term target, with significant consequence on growth momentum, rising debt levels were raising sustainability issues.

“The committee reiterated the importance and urgency of fiscal consolidation efforts,” he said.

Little changes

The ISSER Director and another economist, Dr Said Boakye, the Head of Research at fiscal policy institute, the Institute for Fiscal Studies, said not much had changed since the bank last sounded those warnings.

“The fiscal situation remains a threat into the full year unless revenues shoot up significantly,” Prof. Quartey said.

Dr Boakye explained that from the point of view of credit disbursement, deficit, debt and revenue performance, not much had changed, judging from the latest data.

“If the deficit as of July is 6.1 per cent, it means that you are unlikely to meet the end-year deficit target of 9.4 per cent. In this situation, something around 10 per cent is what you should be looking at,” the head of Research at fiscal policy institute, the Institute for Fiscal Studies, said.

“The non-oil growth is doing well but oil growth is a drag on overall GDP and that is having an impact on export revenues. In terms of government borrowing, not much has changed and the same can be said of credit to the public sector,” he added.

Public inefficiencies

Dr Boakye said not much could be done by the MPC to help address the challenges, especially those affecting non-oil sector growth.

He said the economy was generally underperforming due to the burden that the public sector was imposing on the private sector.

“Public finances in their current state are a drag on the private sector,” he said, citing the crowding-out and its effects on lending rates and growth as basis.

He was, however, optimistic that the improvement in the rainfall pattern in recent times would help improve food production for the pressure on food and general inflation to ease in the next readings.