Some economists have warned the business community to brace themselves for higher interest on loans as the Monetary Policy Committee of the Bank of Ghana (BOG) is likely to increase its policy rate.
The first Monetary Policy Committee (MPC) meeting of the BoG for 2016 is to commence this week.
The 68th regular meeting of the Bank of Ghana will begin on Friday January 22 to Monday January 25, 2016, to review developments in the economy.
The meetings will end with a press conference on Monday January 25 which will be addressed by the Governor of the Bank of Ghana Dr. Henry Kofi Wampah.
The meeting will also end with a decision on the appropriate positioning of the Bank’s Policy Rate which commercial banks use to determine their base rates.
But economist Dr. Ebo Turckson tells Citi Business News considering the current inflationary trends and the hikes in utility tariffs and taxes the BOG has no choice than to increase the policy rate.
The policy rate is the rate at which the central bank lends to banks and is also used by the banks to calculate their base rates.
Dr. Ebo Turckson argued that considering that inflation at the end of 2015 was 17.7% and hikes in utility tariffs and taxes the policy rate will be raised to tone down inflation.
The country’s end of year inflation for 2015 hit 17.7 percent in December.
‘“I think that the monetary policy committee mindful of inflation will look more at the inflation side rather than the fact that a whole lot of taxes has been imposed on the economy and therefore if you look at the point of view of producers that means that we are having challenges and that also mean there is an increase in the cost of production and when you increase the policy rate it has an impact on interest rate stifling domestic production. This means that for this month the bank of Ghana will definitely increase the policy rate which will be targeted at toning down inflation.”
The last time that the MPC met the policy rate was pegged at 26 percent going up by 100 basis point from the 25 percent.
The committee cited high inflationary risk as the principal reason for the increase.
Dr Ebo Turckson also added that ‘don’t forget that the rate at which our currency has depreciated also has an impact on inflation as well and therefore we should not only be looking at inflation in its raw form but we should also be expecting if we are going to be able to stabilize the currency as if we are not able to do that we should expect that our inflationary pressures will be very high within the year’.
The IMF in its last review on Ghana which was concluded last week urged the Bank of Ghana to tighten further monetary policy to tame inflation.
According to the IMF ‘ to help bring inflation down towards its medium-term target, Bank of Ghana should stand ready to further tighten monetary policy if inflationary pressures do not recede as expected’.
It also believes the preparation of an amended Bank of Ghana Act and BoG’s commitment to gradually deepen the foreign exchange market will help make the inflation targeting framework more effective.
Meanwhile there are also indications that the International Monetary fund programme, current tax hikes, inflation and recent developments in the banking industry may be at the heart of discussions.