Monday, 15 January 2018

Policy rate expected to remain unchanged

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Adnan Adams Mohammed

Some economists and financial analysts believe it is highly unlikely for the Bank of Ghana will reduce the monetary policy rate in its first Monetary Policy Committee meeting for the year.

They attribute this to the government’s inability to meet its inflation target for 2017.

Government recorded an 11.8 percent inflation rate at the end of 2017.

Currently, the monetary policy rate, which is the indicative rate at which the central bank lends to commercial banks is at 20 percent.

Widely respected economist, Dr. Eric Osei-Assibey is of the view that the end-2017 inflation figure would highly influence the decision of the Bank of Ghana in determining the policy rate at its next meeting, scheduled for this week.

“Of course now that government has missed its inflation target, it will also have an implication on monetary policy, the Central Bank will be meeting soon to determine the monetary policy rate”, he said.

Dr. Osei-Assibey stated that the development will persuade the Bank of Ghana to assess the situation before any further cut in the policy rate is made.

“Given that the inflation target rate was not achieved and has deviated slightly from its course, it will suggest to the central bank that it cannot drastically reduce the monetary policy rate,” he said adding that the central bank’s aim is to use monetary policy tools to control pricing.

Touching on any possibility of a reduction in the policy rate, Dr. Osei-Assibey stated that it will only be marginal if the Bank of Ghana does it at all. .

“I’m not expecting any drastic reduction in the monetary policy rate given this new development I’m sure even if it will be reduced its going to be very moderate otherwise I will expect that it will be maintained at the current figure”.

Meanwhile, the Head of Research at First Banc Financial Services, Mr Benjamin Amoah-Adjei, is confident that, the rebound in the performance of the Ghana Stock Exchange market would continue into 2018 as interest rates on money market investments, inflation and the monetary policy rate continue to trend downwards. He believes that, interest rates will remain low, which is good for equities.

However, he explained that the level of return recorded in 2017 should not be expected in 2018, given that a lot of the companies were undervalued, resulting in increased demand for their shares.

“As we talk, a lot of these stocks are around what you and I will consider to be fair value, which means that you actually have to analyse to know which one is good or bad. What it means is people will be less willing to rush into the stock market and so we cannot expect the prices to be shooting up as they did in 2017,” he said.

He, however, added that as more institutional investors push more money onto the market, the GSE should be expected to “do well on a general basis.”

Also, an independent analyst, Mr David Tetteh hopes that, companies which will be borrowing are going to have access to cheaper sources of funds and so we expect the financial performance to be sustained

“We expect interest rates to remain low, which is good. These companies which will be borrowing are going to have access to cheaper sources of funds and so we expect the financial performance to be sustained.

“If the financial performance is sustained, we know that the buyers will stay in the market and so I think 2018 will be positive as well,” Mr Tetteh, formerly of CAL Brokers Limited, said.