MPC to announce a new policy rate today, will it be 19% or more?
The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) headed by the Governor, Dr Ernest Addison, will be expected to announce a new monetary policy rate (MPR) today, Monday, May 23, 2022.
The Committee, given the recent developments in the economy over the past two months will be expected to hike the policy rate up from the current 17%.
The expected increment in the policy rate is particularly with regards to the surge in headline inflation to 23.6% in April 2022 – the highest recorded in the last 18 years.
Despite general anticipation that the MPC will hike the policy rate, it is likely that the MPC might decide to maintain the current policy rate of 17% as was the case last year when inflation began to pick up.
In the event that the MPC maintains the prime rate, former Minister for Finance, Seth Terkper, asserts he will evaluate the technical reasons for which the Committee decided to maintain the prime rate.
Should he disagree with the technical reasons provided, Mr Terkper asserts he will not hesitate to say so and provide reasons why he believes the Committee should have hiked the policy rather than maintained it.
In his view, the MPC has no alternative but to hike the policy rate.
Unlikely to happen with regards to the announcement of the new policy rate is a reduction in the rate given the positive relationship between inflation and the monetary policy rate.
Speaking ahead of the announcement of the new policy rate, Governor of the Central Bank, Dr Ernest Addison has described the surge in inflation (which is a major component of the monetary policy rate) as baffling given the impressive 5.4% growth rate recorded in 2021 amid the Covid-19 pandemic, coupled with the stabilisation measures (fiscal and monetary policies) put in place by both the BoG and government in the last one year.
He however, asserts that the country has experienced the worst part of the inflation and that inflation for the remaining months of the year is expected to taper (reduce or lessen).
A hike in the policy rate today, will mean higher interest rates on loans from banks for the private sector.
For the government, it will mean increasing interest rates on its treasury bills to attract investors to the short term securities, thereby costing the government more in the issuance of its short term debt instruments.
The modest projection is that the MPC is likely to hike the policy rate by 200 basis points to peg the new policy rate at 19%, but could it be more given the more than 400 basis points (4%) increment in inflation rate from April (19.3%) to May (23.6%).
Stay tuned to norvanreports as we bring you updates on today’s MPC press briefing….
