New taxes likely to have impact on policy rate - Prof. Quartey

• Economist Peter Quartey has said that the new policy rate could be influenced due to new taxes and rise in fuel prices

• He said if there should be a reduction in the policy rate, it will be a good call for businesses

• He also noted that, if the policy is maintained it will help to rig in some revenue

The Director of the Institute of Statistics, Social and Economic Research (ISSER) of the University of Ghana, Professor Peter Quartey, has stated that the new taxes could have an impact on the economy if policy rates are not reduced.

The Bank of Ghana is currently announcing a new policy rate today. Mr Quartey said a close look at the economic indicators and happenings in the country make it likely for the rate to be maintained or reduced, which would be good news for businesses.

“We are told that the new taxes will kick in during May and already prices of goods have started increasing on the market; so it is not just about current inflation but also inflation expectation. In determining the policy rate, you have to look at inflation expectation and not current inflation alone. And from the fuel price increments and new taxes, inflation is expected to inch up going forward. Factoring all these into consideration, I think it will be best to maintain the policy rate for now,” he said.

Following the key factors, the Monetary Policy Committee (MPC) takes into consideration before deciding on the policy rate the economist said, the factors have not been robust enough hence the need for a reduction.

“We are told that the new taxes will kick in during May and already prices of goods have started increasing on the market; so it is not just about current inflation but also inflation expectation. In determining the policy rate, you have to look at inflation expectation and not current inflation alone. And from the fuel price increments and new taxes, inflation is expected to inch up going forward. Factoring all these into consideration, I think it will be best to maintain the policy rate for now,” he said.

He continued: “I would be more inclined toward maintaining the policy rate because some of the key indicators – inflation, inflation expectation, exchange rate movement, level of economic activity, among others – I don’t think have seen any major shift.”

However, inflation, exchange rate, foreign investors’ reaction, and the general economic situation among other factors are considered before the policy rate is decided.