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.