Economist explains why maintaining 14.5% policy rate good for economy

Economist Dr Lord Mensah has lauded the central bank for maintaining the monetary policy rate at 14.5 percent.

He believes this is a step in the right direction even as the country’s economy is adjusting to ways to be resilient from the effects of the COVID-19 pandemic.

The Monetary Policy Rate (MPR) is the rate at which the Bank of Ghana lends to commercial banks and subsequently influences interest rates on loans.

The Bank of Ghana has maintained the same 14.5% rate at three consecutive times this year.

Dr Lord Mensah believes the Christmas season, coupled with the upcoming general elections, will result in some level of uncertainty in the country’s exchange rate and therefore maintaining the rate is crucial for the economy at this time.

“With COVID-19 and looking at the easing of economic activities across the globe, I can say that we are not even sure of the level of exchange rate that when the economy starts easing up more and we start doing importation in the full scale. We are going to have an upward surge in our exchange rate, so I was expecting that it will be maintained just as has been done.

Also looking at the quarter that we find ourselves which is the last quarter, under no circumstance did I anticipate the committee to reduce the policy rate because of inflation pressures here and there and when we get into Christmas we have issues of price surges and also with the upcoming elections a lot of people will want to keep their money in foreign currencies like the dollar”, he told Citi News.

In March this year, the Monetary Policy Committee (MPC) of the Bank of Ghana, reduced the policy rate to 14.5%.

The rate was maintained in May and July 2020, following the impact of COVID-19 on the economy.

The decision according to the Governor of the Central bank, Dr. Ernest Addison, was based on uncertainties in the economy caused largely by the COVID-19 pandemic.