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BoG Governor justifies maintaining policy rate at 26%

bycitibusinessnews
July 19, 2016
in Banking And Finance, Government, Local Economy, Top Stories
Governor of BoG, Dr. Abdul-Nashiru Issahaku

Governor of BoG, Dr. Abdul-Nashiru Issahaku

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The governor of the Bank of Ghana (BOG) Dr. Abdul Nashir Issahaku has justified why the Monetary Policy Committee kept the policy rate at 26%, unchanged.

He argued that increases in ex-pump prices of petroleum products continue to impede the central bank’s disinflation process.

Reacting to expectations that the policy rate should have rather been reduced considering the stability in the economy, Dr. Issahaku said it is too early to reduce the policy rate considering inflation which currently stands at 18.4%.

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“You want to know why we retained the policy rate at 26%, when your expectation is to have the policy rate reduced. Let me state that until the disinflation process is well grounded I think it will be too soon to start reducing the policy rate,” he said.

Dr. Issahaku further explained that stability in the other macro and micro economic variables are not enough to reduce the policy rate.

“As I mentioned earlier, the inflation path and time horizon has moved outward and with this we cannot at any rate be reducing the policy rate.”

This comes at a time that, the central bank’s monetary policy committee, kept its base lending rate at 26% ,citing the inflationary trends and the relative stability in the depreciation of the Cedi as the major reasons for the decision.

Though the Governor in May this year was optimistic of achieving the BoG’s inflation target of 8 percent plus or minus 2 by close of year, he expressed concerns over risks such as petroleum price hikes and utility price hikes.

Analyst shocked at policy rate unchanged

Meanwhile, a Senior Lecturer of Finance at the University of Ghana Business School, Dr. Lord Mensah has expressed surprise at the Bank of Ghana’s decision to maintain the policy rate at 26%.

According to him, macroeconomic indicators such as the decline in inflation should have reflected in a drop in the policy rate.

“I think it is a surprise, with the maintenance of the policy rate. There is some kind of uncertainty around it as one is not sure when the rate will come down or move up. But for me looking at all the indicators on the ground, if you are really abreast with all that is happening on our macro-economic front, then I presume the rate should have come down,” he remarked.

“We have seen inflation going down and most of the time the monetary policy rate is basically on inflation targeting and if inflation is coming down, it shows that there is a signal that interest rates can come down for businesses to borrow,” he added.

He was however of the opinion that the central bank may have maintained the rate due to low liquidity.

“Now, if inflation is coming down, that means we don’t have much money chasing more goods in the economy and therefore this only shows that there is lack of money in the system,” he explained.

–

By: Norvan Acquah – Hayford/citibusinessnews.com/Ghana

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