IMF says it expects BoG to maintain its policy rate through to 2022
Bretton Wood Institution, the International Monetary Fund (IMF) has expressed its expectation of the Bank of Ghana (BoG) maintaining its policy rate for the rest of this year and throughout 2022.
The expectation of the BoG maintaining the policy rate through to 2022 by the IMF is expressed in its 2021 July World Economic Outlook Update report.
“Major central banks are assumed to leave policy rates unchanged throughout the forecast horizon (end of 2022). Some emerging market central banks have begun reducing support, and more are expected to follow suit later in 2021,” said the Fund.
The Central Bank at its last Monetary Policy Committee (MPC) in May 2021, reduced its MPR by 100 basis points from 14.5 percent to the current 13.5 percent as part of continuous counter-cyclical measures implemented by the BoG to mitigate the impact of the coronavirus pandemic on the economy.
The 100 basis points reduction followed an earlier 150 basis points reduction in the policy rate from 16 percent in March 2020 when the pandemic first broke out in the country.
Must Read: Government to expand domestic revenue mobilisation with new initiative
In addition to the reduction in policy rates, the BoG has implemented certain monetary policies which have aided in the quick recovery of the Ghanaian economy from the pandemic with Ghana managing a modest 0.4 percent growth rate at the end of 2020 while its peers on the continent recorded negative growth rates.
The IMF on the back of such monetary policies, applauded the BoG asserting the current monetary policy stance of the BoG, remains “broadly appropriate.”
In its WEO Update, the IMF however, cautioned the BoG about the potential risks of transitory inflationary pressures stating that the Bank should avoid tightening monetary policy until there is ‘more clarity on underlying price dynamics.’
“Central banks should generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying price dynamics. There is however a risk that transitory pressures could become persistent and central banks may have to take preemptive action. In an unprecedented recovery of this kind, there is an even greater premium on clear communication from central banks on the outlook for monetary policy.”
“Where the recovery is underway and vaccination is advanced, central banks can begin telegraphing their exit from extraordinary monetary support (as the Federal Reserve did in June). More generally, central banks should be prepared to move quickly if the indicators suggest the recovery is strengthening faster than expected (as the Bank of Canada did in April and July when it scaled back its asset purchase program),” noted the IMF.
