Bank of Ghana's MPC likely to hold rate - Economists project

Some economists are projecting that the Monetary Policy Committee (MPC) of the Bank of Ghana will maintain the policy rate at 14.5 percent when it announces its decision today given the upside risk to inflation as well as government’s fiscal policy.

Inflation increased from 9.9 percent in January to 10.3 percent in February, driven by non-food prices, which recorded an inflation rate of 8.8 percent from 7.7 percent in the previous month.

Professor Peter Quartey, Director of the Institute of Statistical, Social and Economic Research (ISSER) at the University of Ghana, said in an interview that an increase in the policy rate would lead to an increase in interest rates, which is not in line with government’s fiscal policy.

“So, a reduction or maintaining the policy rate is the way to go. For now, I think they may maintain it,” he said.

Other economists said the downside risks to inflation are not low enough to trigger a cut in the policy rate, but neither are the upside risks high enough to warrant a hike in the policy rate.

They said the factors requiring the MPC to maintain the policy rate include the elevated headline and core inflation rates of above 10 percent, the mounting upside risks to global oil prices, and the potential upside push from the new taxes announced in the 2021 budget.

The taxes include a new 5 percent levy on bank profits, a 1 percent increase in the VAT flat rate, and a 1 percent increase in the National Health Insurance Levy.

Courage Kingsley Martey, senior market analyst with Databank Research, said holding the policy rate unchanged at 14.5 percent will allow the MPC to monitor how the new taxes are reflected in aggregate price levels in the coming months before deciding the next move.