Sunday, 23 May 2021

BoG in a fix position over rate decision

 



By Elorm Desewu

The seven member of the Monetary Policy Committee of Bank of Ghana may be in a fix position to either slash or maintain the policy rate after it has maintained it for almost five consecutive times, as it begins to review the health of the economy this week.

The year on year inflation of 8.5 percent for April, 2021 is within the BoG’s target band of 8±2 percent. However, the current hike in petroleum products and the expected rise in inflation in the coming months may put the BoG in a dilemma either to maintain or slash the policy rate.

But there are strong indications that the BoG is likely to hold the policy rate at 14.5 percent.

The policy rate is the rate at which the universal banks borrow from the BoG as their last resort and also serves as a benchmark for setting the Ghana Reference Rate.

If the policy rate is maintain, it means interest rates would be stable for the next couple of months but if it is slashed, the cost of borrowing would be less expensive.

Already, the BoG has admitted that there are emerging short-term pressures emanating from the rising crude oil prices and the direct and secondary price effects of the revenue measures announced in the 2021 budget.

The recent price hike in the petroleum products and the expected rise in transportation fares may push BoG’s inflation target of 8±2 percent for this second quarter off gear.

Year on year inflation measured by the Consumer Price Index, (CPI) declined from 10.5% in March to 8.5% for the 12 months period ended April 2021, according to figures from the Ghana Statistical Service.

It is the first single digit rate recorded in the year, following the ravaging effects of covid-19 on the economy. This means increases in price of goods and services slowed down in April 2021, compare to March this year.

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