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Maintaining policy rate will not erode gains made – Economist

Maintaining policy rate will not erode gains made – Economist

Although inflation, which is a key determinant in setting the policy rate, is hovering around 10% for June after inching up by 0.2 per cent from the 9.8% recorded in May, it may not be encouraging enough to warrant an increase in the policy rate. 

This is according to an economist Dr Ebo Turckson who says, the Bank of Ghana (BoG) must maintain its policy rate at 17 per cent for the third quarter of the year. 

The Monetary Policy Committee (MPC) of the Bank of Ghana will hold its 83rd Regular Meeting from Wednesday, July 18 – 20, 2018 to review developments in the economy.   

It will be concluded with a press conference on Monday, July 23, 2018, to announce the decision of the Committee.

Dr Turckson in an interview with JoyBusiness said, holding of the rate would be consistent with a number of factors, including the need to keep the taps on inflationary pressures.

“Because we are thinking about expanding this economy and inflation has slightly edged with the Cedi also see some depreciation, you would have thought that they will increase the policy rate. Because the government programme to expand the economy by creating jobs which is to allow for tax revenues to be increased, I think that the central bank should maintain the rate,” Dr Turckson stated.

He further stated that “yes there is some risk attached to that but on the balance of the factors and what Ghana wants to do in the area of industrialisation, I think that maintaining the rate is very important.”

At the 82nd Meeting of the MPC, the Bank of Ghana (BoG) reduced the policy rate to 17 per cent cutting it by 100 basis points from 18 per cent in May 2018.

That also came after the central bank reduced the rate from 20 per cent to 18 per cent in March this year, as policy rate is the rate at which the central bank lends to commercial banks for onward lending to their customers.

The Governor of the Bank of Ghana, Dr Ernest Addison speaking to the press at the time stated that the reduction is aimed at achieving the lower inflation target.

“The committee noted that the risks to the inflation outlook are subdued in the forecast horizon. While global and domestic developments do not yet pose a threat to inflation in the near term, recent changes in global financing conditions and its impact on emerging market asset classes require some vigilance,” the governor pointed out.

He explained that the committee consequently, decided to reduce the monetary policy rate by 100 basis points to 17 per cent given that headline and core inflation had broadly trended downwards, indicating easing underlying inflation pressures.

It is not clear if the committee will consider the likely increment in taxes which JoyBusiness understands the President Nana Addo Dankwa Akufo-Addo is opposed to but the Economic Management Team thinks otherwise. Whether or not this tax increment will come on or not, that will be after a cabinet meeting scheduled for Tuesday.

 

Original Story on: MyJoyOnline


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