Economists urge MPC to maintain policy rate at 14.5%

Some economists have advised the Bank of Ghana’s Monetary Policy Committee (MPC), which meets this week to consider its next policy move that will be announced on November 23, to maintain the policy rate at 14.5 percent given the upside risk to inflation.

Inflation has declined from 11.4 percent in July to 10.1 percent in October, reaching the lowest rate since March 2020.

Nevertheless, explaining the need to maintain the policy rate, a senior economist with Databank, Courage Kingsley Martey, said: “we’re still treading cautiously because the upside risks to inflation still persist in the outlook despite the slight moderation. The decline [in inflation] was caused by a sharp drop in fuel, utilities and transport inflation, which were dragged down by external forces on global fuel prices.”

He added: “I don’t expect the latest drop in CPI inflation to 10.1 percent to trigger any movement in the monetary policy rate at this month’s MPC meeting. I’d rather expect continued vigilance while maintaining the rate at 14.5 percent.”

Mr. Martey said an important risk factor that should not be discounted is government spending in this election year, adding that fiscal pressures have not moderated despite the fall in inflation.

In a separate interview, a chartered economist, Ebenezer Ashley, said both the elections and Christmas season are indicative of likely increases in importation and demand for goods and services in the last quarter of 2020.

“Due to the foregoing factors, the best the Monetary Policy Committee (MPC) of the Bank of Ghana could do is to stay the policy rate in the last quarter and to consider reductions next year.

Staying the policy rate would help the entire economy to mitigate any foreseen or unforeseen internal and external socio-economic shocks that could [increase] inflation in the last quarter,” Mr. Ashley said.