Monetary policy rate to remain unchanged?

It is unlikely the policy rate, a key determinant of monetary developments in an economy will be adjusted this time around following some relative stability in the dollar-cedi exchange rate, some economists and analysts have noted.

Nevertheless, they are closely monitoring developments with regard to the Monetary Policy Committee (MPC) of the Bank of Ghana’s 67th regular meeting which will conclude with a decision on the policy rate tomorrow.

This is due to the fact that the Bank of Ghana (BoG) contrary to the views of experts raised the policy rate by 100 basis points to 25 percent during the MPC’s last meeting in September.

“I don’t think the policy rate will be reduced or increased. I will be surprised when it is altered upwards or downwards”, Dr John Gatsi, Senior Economist and Lecturer with the University of Cape Coast told Business Finder.

He explained that the macro economy had started seeing some stability particularly with respect to the exchange rate, adding, “the energy crisis has started seeing some improvement as well.”

“I think the policy rate will be maintained to consolidate the gains chalked so far,” he stated.

Lecturer in Public Accounting at the Ghana Institute of Management and Public Administration (GIMPA), Dr Raziel Obeng-Okon noted that “there is a potential upward risk to the inflation forecast, and this may be a justification for the Bank of Ghana to continue with the tight monetary policy in the last quarter of 2015.”

He stated further that given that both the inflationary expectation and exchange rate volatility had not eased significantly, the BoG would want to continue with its tight monetary stance.

“That notwithstanding, I expect the monetary policy rate to remain at 25 percent for the next quarter of 2015,” he added.

Renowned Ecobank Research also believes there will be no change in the policy rate of 25 percent.

This will mean that interest and lending rates will remain virtually unchanged till the end of the year or go up marginally because of government’s borrowing spree.

The perception among the business community is that the current 25 percent is too high, meaning that any additional increment of the Policy Rate could impact negatively on interest rates.

At its last meeting, the MPC said the decision to increase the policy rate was consistent with the Bank’s forecasts, which required further tightening in order to bring inflation back within the target band by the end of 2016.

It, however, stated that it will continue to monitor developments and take appropriate action if necessary.

The Committee also observed that the fiscal consolidation continued in the first seven months of the year, as revenues exceeded target while expenditures remained within targets.

These developments it noted resulted in a fiscal deficit of 3 percent of GDP within the program target of 4 percent.

It added that maintaining the pace of fiscal consolidation over the medium term is necessary to complement the tight monetary policy stance for the attainment of the medium-term inflation target.

Presently, the yield on the 91-day Treasury bill is 24.95 percent while that of the 182 instrument is 25.85 per cent.