Dr. Atuahene Advises BoG to Maintain Policy Rate at 27% Amid High Inflation Expectations
Banking Consultant, Dr. Richmond Atuahene, has advised the Governor of the Bank of Ghana (BoG), Dr. Johnson Asiama, to maintain the policy rate at its current level of 27%, citing persistently high inflation expectations and exchange rate volatility.
Speaking in an interview monitored by NorvanReports, Dr. Atuahene warned against a premature reduction in the policy rate, emphasizing that a decline in Treasury bill yields does not necessarily justify a policy rate cut.
“If you look at the policy rate and inflation expectations, the expectation is very high, the macroeconomic environment is not as good as people think. Any country experiencing over 20% inflation consistently for a year is considered to be in a state of hyperinflation,” he noted.
He further cautioned that lowering the policy rate without ensuring stable inflation and currency conditions could lead to a loss of control over inflation.
“The governor must be very circumspect about bringing the rate down simply because Treasury bill rates have declined,” he stated. “If he does so prematurely, inflation could spiral out of control.”
The Monetary Policy Committee (MPC) of the Bank of Ghana will hold its 123rd Regular Meetings from Monday, March 24, 2025, to Wednesday, March 26, 2025, to review developments in the economy in the last two months.
The meetings will conclude with a press conference on Friday, March 28, 2025, to announce the new policy rate decision of the Committee.
Cedi Depreciation and Monetary Policy Considerations
Dr. Atuahene also pointed to the cedi’s depreciation over the past two months as a key factor supporting the need to maintain the policy rate.
“The cedi has not been stable, moving from GHS 15.85 per dollar to GHS 16.15 per dollar—a significant jump,” he noted. “To maintain stability, I would advise the governor to hold the rate at 27% and observe economic trends for the next two months before making any adjustments.”
He further stressed that the policy rate serves as a benchmark for interbank rates, Treasury bill rates, and reference rates making it crucial for monetary stability.
“The government is attempting to bring Treasury bill rates down, but we cannot ignore inflation, an economy cannot function effectively without stable inflation and a stable currency,” he remarked.
Inflation Target Considered Overly Aggressive
Dr. Atuahene also expressed skepticism about the government’s inflation target of 11.9% by year-end, calling it overly ambitious given the current inflation rate of 23.1%.
“The projected decline from 23.1% to 11.9% in just nine months is a very difficult target to achieve,” he argued. “Historically, Ghana has only met its inflation target twice under the 8% ±2% policy framework. It would be prudent to adopt a more cautious approach rather than aggressively pushing for such a drastic reduction.”
While acknowledging the need for monetary policy adjustments in the medium term, he suggested that any rate cuts should only be considered when inflation stabilizes around 20%, allowing for a measured reduction to 25% or 24% in the policy rate.
