A finance expert and an associate professor with Andrews University in Michigan, USA, Prof Williams Kwasi Peprah, has said increasing the monetary policy rate will not bring down inflation as expected.
He said the recent increase in the policy rate was a careful move by the central bank “not to rush the economy into recession”.
Speaking with Benjamin Offei-Addo on the Asaase Breakfast Show (ABS) on Friday (7 October), Prof Peprah said, “I think that this is not going to help us achieve that particular goal [bringing inflation down]. If you look at the World Bank and IMF reports released recently, they mentioned that our central bank has been very slow at responding to inflationary pressures.
“So if you look at the inflation rate hovering around 33.9% and you have a policy rate of 24.5% and where you also have your 90-day treasury bill rate hovering around 28%, 29%, what it means is that 24.5% [policy rate] is not going to work.”
He added, “But I understand what they [BoG] are trying to do … they don’t want to cause crowding out effect by making sure that the cost of funding becomes so expensive. So this particular rate of 24.5% gives an indication that the central bank is very careful not to rush into recession with our economy where we will see the crowding out effect because if they didn’t move the monetary policy rate to match the interest rate in the country, it is going to cause industries in the country not to be able to borrow…”
The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) raised the policy rate by 250 basis points to 24.5%.
The policy rate indicates the interest rate at which the central bank lends to commercial banks in the country.
The decision was taken after an emergency meeting by the committee to review developments in the economy after inflation hit 33.9% in August.
Speaking at the 108th MPC press briefing in Accra on Thursday (6 October), the Governor of the BoG, Dr Ernest Addison said, heightened economic and policy uncertainties, inflationary pressures, and weakening of the cedi against the US dollar as among the reasons for the increment.
“Inflation remains elevated and the balance of risks is on the upside. Although the forecasts are for monthly inflation to continue to slow down, the risks are on the upside, emanating largely from pass-through effects of the currency depreciation, the recent upward adjustment in utility tariffs, and rising inflation expectations,” Addison added.
However, the central bank said it remains committed to re-anchoring inflation expectations and returning to a disinflation path.
Standard of living
Also speaking on the ABS a financial systems analyst, Kweku Adoboli said, “Increasing the policy rate too fast will only lead to the deterioration of the standards of living of Ghanaians … It is therefore not something that will and/or should even be considered by the BoG”
“I find it very difficult to believe that the BoG has the power to stop the inflation we are experiencing because it is caused [mainly] by external factors … And the structure of our debt,” he said.
Watch the full interview below:
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