Economists expect Ghana’s policy rate to be maintained

Ahead of the commencement of the 97th Regular Meetings of the Monetary Policy Committee of the Bank of Ghana, some economists have told Citi Business News that they expect the Central Bank to maintain the rate for a fourth consecutive time.

They attribute their expectations on the high fiscal deficit of the country.

The 97th Regular Meetings of the Monetary Policy Committee of the Bank of Ghana will be held from November 18 to November 20, 2020.

The meeting is to help review developments in the economy before an announcement of a policy rate is made on November 23, 2020.

The Monetary Policy Committee of the Bank of Ghana at its last conference in September maintained the policy rate at 14.5 percent after a similar decision in July and May of this year, making it the third consecutive time the policy rate had been maintained in 2020.

The rate is of keen interest to businesses, as it signals the rate at which the Central Bank lends to commercial banks, and will subsequently influence average lending rates on loans to individuals and businesses.

Some economists Citi Business News engaged ahead of the announcement said some risks still pertain in the external environment.

This, coupled with the country’s high fiscal deficit which government is targeting to hit 11.4 percent by the end of 2020, supports their expectations for the policy rate to be maintained.

Courage Martey is one of the economists, and he justified his position to Citi Business News.

“The optimal decision for me will be to maintain it at 14.5 percent whilst remaining vigilant. Because if you look at the inflation argument and the fiscal risk arguments, the two arguments come together to let you know that there is still so much risk in the outlook that you cannot reduce. But then there is also a reduction in inflation rate over the past few months, and that gives you reason to be hopeful and not to be too scared or hawkish and so there is not sufficient grounds to be increased.”

“The current high financing requirement of government also requires a certain optimal level of interest rate to attract the needed funds to fund the government’s deficit. On these two argument arguments, I would expect that the policy rate is maintained,” he added.

For economist Dr. Eric Osei Assibey, he expects the policy rate to be either maintained or reduced slightly by 50 to 100 basis point due to the present domestic and global financial conditions.

Another economist, Dr. Adu Sarkodie added that he doesn’t expect an increase any time soon because of the expansionary monetary policy of the Central Bank in this economic slowdown due to COVID-19. He added that it might not be decreased further because of the high fiscal deficit and also the double-digit inflation rate.