Business News Wed, 22 Sep 2021

Analysts project MPC to stay policy rate

Analysts are projecting the Monetary Policy Committee (MPC) of the Bank of Ghana to maintain the policy rate at 13.5% given the risk to recovery as well as the current drivers of inflation.

The latest data from the Ghana Statistical Service (GSS) shows that the economy grew 3.9% in the second quarter of 2021, representing an improvement on the 3.1% growth recorded for the first quarter of the year, indicating a rebound from the COVID-19 induced economic recession during the second and third quarters of 2020.

Inflation on the other hand has been on the rise, hitting 9.7% in August 2021, the highest recorded in five months; closer to the upper target band of the central bank at 10%. Domestic price pressures weakened during the second quarter of 2021, resulting in the decline in headline inflation significantly from 10.3%in March 2021 to 7.5% in May 2021, before rising to 7.8% and 9% in June and July 2021, respectively.

Senior Economist with Databank – asset management company – Courage Kingsley Martey said in an interview with the B&FT that the market is anticipating the BoG to keep the policy rate unchanged at the current level of 13.5%.

“Increasing it could undermine the already fragile recovery that’s ongoing. The August reading of Ghana’s index that covers prevailing direction of economic trends in the manufacturing and service sectors, known as Purchasing Managers’ Index (PMI) showed private sector conditions moderating for the second consecutive month. This is not good for economic recovery if it continues,” Martey said.

Currently, the BoG is confronted with the view that the drivers of inflation are cost-push and structural factors, which are not immediately within the reach of monetary policy, unlike demand-side forces. “We don’t also have the room to reduce in this situation. So, we expect the BOG to keep the policy rate unchanged.”

Sharing his projection to B&FT in an interview, Senior Investment Analyst at OctaneDC Limited, Kwadwo Acheampong said giving the central bank’s aim of reducing average interest rate, it is unlikely that the bank will consider revising the Monetary Policy Rate (MPR) upwards.

“The drive from food inflation (more than half of total) may be transient. It is not likely the bank will consider revising the MPR upwards, especially when it is in the leadership drive to help bring lending rates down,” Acheampong said.

He added: “If, however, non-food inflation rises significantly, especially on the back of oil price increase, then the Bank may consider an upward adjustment. Investors are likely going to demand higher yields from new issuances and sell their holding in existing bond investments. That could mean even more pressure on the local currency to depreciate.”
Source: thebftonline.com
Related Articles: