BoG's 1% policy rate cut is a big joke – Togbe Afede XIV

The Agbogbomefia of the Asogli State, Togbe Afede XIV, has described the recent cut in the monetary policy rate of 1 percent [30%-29%] by the Bank of Ghana as a big joke.

The Central Bank’s Monetary Policy Committee cut the policy rate by 100 basis points on January 29, 2024, after it held its first meeting of the year to review economic developments in the country.

According to the BoG Governor, Dr Ernest Addison, the decision was based on core inflation figures easing downwards while several factors have supported the disinflation process.

But Togbe Afede XIV strongly disagrees with the decision by the Central Bank while arguing what the exact impact of the 1 percent rate cut will have on lending rates, inflation rate, exchange rate or economic growth in general.

In a write-up sighted by GhanaWeb Business, the economist wrote, “I wonder whether they have determined the correlation between interest rates, inflation, and exchange rates in our country.”

“The hesitant 1% rate cut to 29% is particularly surprising given their expectation that headline inflation would “ease to 15%±2% by the end of 2024 and gradually trend back to within the medium-term target range of 8%±2% by 2025”.

I do not see the relationship between the expected or target 15%±2% inflation and the high 29% monetary policy rate. It gives the impression that our top economists do not believe in themselves or their own forecasts,” he explained.

Togbe Afede XIV also expressed worry about the possibility of Central Bank officials and the economic managers whom he says “do not believe in their own numbers, given their new claim of signs of ‘emerging recovery’, having previously told us that the economy had 'turned the corner’.”

He stated that although he understands the complexity of the interplay between various macroeconomic variables, the central bank’s policy rate and open market operations are supposed to influence the rate of inflation.

“But BOG officials still have a fixation on headline or year-on-year inflation, and so cannot depart from their reactionary monetary policy approach, which responds to what had transpired, that is, past one-year price changes, instead of their expectation of inflation (15%±2% this year).

So, the 1% reduction in the policy rate appears to be a reaction to the 3.2% fall in headline inflation in December to 23.2%%, from 26.4% % in November,” Togbe Afede XIV emphasized.

See his full write-up below:

MA/NOQ

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