BoG’s Aggressive Rate Cut Could be Undermined by Proposed Tariff Hikes, Prof. Asuming Says
Professor Patrick Asuming of the University of Ghana Business School (UGBS) has warned that the Bank of Ghana’s (BoG) latest policy rate cut may be too aggressive, raising concerns that imminent utility tariff adjustments could undermine recent gains in stabilising inflation.
The BoG’s Monetary Policy Committee (MPC) this week slashed the benchmark rate by 350 basis points to 21.5 per cent, citing a consistent decline in inflationary pressures.
In an interview, Prof. Asuming argued that the magnitude of the reduction was premature, particularly given the sharp cut announced at the MPC’s previous sitting.
“Personally, I think that it is quite aggressive. Even if there was going to be a cut, considering that at the previous meeting there was a substantial cut, I would have thought that if there was going to be a cut, it would be rather moderate,” he noted.
He explained that with anticipated increases in electricity and water tariffs, inflationary pressures could resurface, eroding the effectiveness of the BoG’s aggressive easing stance.
The policy rate, which serves as a key tool for influencing lending rates and inflation, directly impacts borrowing costs for businesses and households. While the rate cut is expected to stimulate economic activity, some analysts share Prof. Asuming’s concern that the central bank may be underestimating short-term risks to price stability.
The debate on policy rate cut underscores the delicate balance the BoG faces in supporting economic growth while ensuring inflation remains within the medium-term target band.
year, Prof. you said it right. The magnitude of the downward slash in the MP Rate was too much, given an equally big reduction only recently. One reason is that it go to encourage borrowing at reduced bank interest rates so businesses could grow to promote macro economic activities.
However after first reduction it is expected that the policy makers would watch its effect on whatever parameter it intended or had targeted for some time before the recent slash of 350 percentage points on The MPR