Policy rate likely to be cut by end year

By Elorm Desewu
The policy rate is likely to be slashed by the end of
this year, if things continue to improve, according to the governor of the Bank
of Ghana, (BoG), Dr Ernest Addison.
“The MPC is being cautious and we are adopting
almost a wait-and-see attitude. I believe that if conditions continue to be
favourable, we should see the policy rate going down, hopefully by the end of
the year, that is, if things continue to improve”, he noted in an interview.
The Monetary Policy Committee (MPC) of the Bank of Ghana decided to hold the policy rate at 16 percent at its first MPC press conference for 2020.
According to the governor of the BoG who also doubles as the chairman for the MPC committee, Dr Ernest Addison, “risks to the inflation and growth outlook are broadly balanced, and therefore decided to keep the Monetary Policy Rate unchanged at 16.0 percent, while standing ready to take decisive policy actions when necessary to ensure that inflation remains within the target band”.
“Inflation seems to be within our
medium-term target band and based on that the central bank should have gone
ahead to cut the policy rate. That is a sense tells you that we are being
cautious, and the reason why we are being cautious is the dependence of our
budget on external financing, in particular, non-resident participation in our
bond market.
Therefore, it is important to ensure the full financing of
the budget before making any decisions that may have implications on the budget
financing. If we are unable to get the non-residents to finance the budget, the
resources would have to be found from the domestic market with implications for
crowding out the private sector and implications for the direction of interest
rates”.
The policy rate is the rate at which universal banks in
the country borrow from the central bank as their last resort and also serves
as a benchmark in setting the Ghana Reference Rate which is currently at 16.1 percent.
“The coordinated monetary policy responses of the major central banks to keep interest rates on hold and adopt a dovish monetary policy stance should benefit emerging market economies with solid macroeconomic fundamentals” he said.
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