Maintain tight policy rate to stabilise the cedi – IMF tells BoG

The International Monetary Fund (IMF) has advised the Monetary Policy Committee of the Bank of Ghana (BoG) to keep the policy rate tightened as it has done in the last couple of months to prevent the cedi from depreciating.

According to the IMF, any further reduction of the current BoG Policy Rate will spell doom for the local currency which continues to wobble and depreciate against the major trading currencies such as the US Dollar and the British Pound Sterling.

“Inflation expectations remain aligned with the central bank’s target and short term real rates are above the historical average. This context suggests that the current policy rate is appropriate. The MPC should remain cautious as inflationary pressures could re-emerge and a relatively tight stance may help stabilize the exchange rate and reduce FX interventions”.

As of December 2019, inflation was pegged at 7.9 percent after dropping from 8.2 percent in the previous month (November) leaving the policy rate at 16 percent.

At the end of the third quarter of 2019, the cedi had depreciated by 13% against the US dollar.

It is for the reason that government early this year set up a Foreign Exchange (FX) Development Committee as part of efforts to regulate the supply and demand of forex in the country.

This follows an order from the president to the Finance Minister to investigate the structural causes for the depreciation of the cedi and to come up with strategic measures in fixing the problem.

The membership of the committee includes some persons from the Office of the Vice President, Bank of Ghana, Agriculture Ministry, Ghana Union of Traders Association (GUTA), Association of Ghana Industries, some universal banks among other key stakeholders.