Price, exchange rate pressures key for next Monetary Policy Rate

The next monetary policy rate (MPR) to be announced by the Bank of Ghana in November is set to hinge keenly on how inflation and exchange rates turn out in the coming weeks, the International Monetary Fund (IMF) has indicated. The next MPR will be effective for two months ending in late January 2020.

In statement issued, following the Fund’s staff consultation mission to Ghana last week, the IMF recommended that, “tightening monetary policy may become necessary should inflationary or exchange rate pressures emerge.”

“The monetary policy stance appears appropriate, but it should continue to remain vigilant to inflationary risks,” it noted.

In response to the IMF’s latest views – which are largely shared by BoG chieftains – economists and financial analysts are already doubting whether a reduction in the MPR, in response to lower inflation and a relatively stable cedi, will be done next month, even though the private sector is calling for it to lower borrowing costs.

Inflation for a second consecutive month in September 2019, slowed to 7.6 percent from 7.8 percent in August 2019, although the sharp fall in headline inflation during the third quarter of the year, from over nine percent during the first half of the year, is largely as a result of the recent rebasing of inflation computations.

At the last Monetary Policy Committee (MPC) meeting with the media, held in late September, the Governor of the central bank, Dr. Ernest Addison noted that the Committee’s view was that the pace of disinflation had slowed somewhat, and therefore the Committee would closely monitor the second-round effects of recent administrative measures – increases in power tariffs and fuel prices – in the last quarter.

This, along with a higher than anticipated fiscal deficit for the first seven months of 2019 led to the decision to maintain the maintain the policy rate at 16 percent — for the fourth time running – as a precautionary measure.