The Monetary Policy Committee of the Bank of Ghana is expected to maintain its monetary policy rate at 25 percent, especially as inflation continues its steady path for the third consecutive month.
The Committee in its previous meeting voted to increase the policy rate — the indicative rate at which the central bank lends to commercial banks — to 25 percent as it stepped up its fight to tame inflation, which has been largely erratic during the year.
But the consumer price index has since then remained stable over the past two months at 17.4 percent in September and October, though still far from the end-year target of 13.7 percent the bank has projected.
Speaking ahead of today’s press conference to announce the rate action of the 67th regular meeting of the MPC, Leslie Dwight Mensah, Resident Economist at the Institute for Fiscal Studies (IFS) in Accra, was confident the central bank will maintain its rate.
“I think they’re likely to keep the rate steady, particularly with the exchange rate somewhat stabilising since September. The MPC will also be minded by the fact that there’s a point beyond which further tightening becomes counterproductive, in terms of its own cost pressures on the real sector of the economy,” he said.
Another analyst, Sampson Akligoh, Managing Director of InvetCorp — an investment advisory firm, was also assertive that the central bank has enough justification in the recent stabilisation of inflation and the local currency to maintain its policy rate.
According to him, the economy has settled on the currency and inflation front, although he maintains that it will take time for the market to rationalise the new-found stability.
“I think this requires the central bank to take a neutral stance, but there is room for the MPC to yield immediately to optimism. I think the onset of the festive season and its associated demand pressures should bring some guarded optimism,” he explained.
With utility prices set for massive increments in a few weeks’ time, there are arguments that the central bank could act proactively in using its inflation-targetting tools to control pass-through effects the utility price increases could have on inflation.
But Mr. Mensah said with barely two months to end the year, it appears government is holding out to implement the adjustment in utility prices — by which time the power crisis would have ended with the coming on-stream of the emergency power barges.
According to him, the expected hike is most likely to happen in January 2016, which he said gives the MPC some room to hold from any further tightening till 2016.However, Mr. Akligoh was of the opinion that the MPC does not have the potency to fight inflation, especially when it results from utility prices: “Not in the case of Ghana and in a situation where prices are expected to be closer to market levels.
“If there is any expectation, I believe we have to allow utility price increases to influence consumption efficiency– unless the supply side problems remain endemic,” he added.