Monetary Policy Committee to give direction: The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) is set to announce its decision points, presenting a gauge for how it will balance the economy.
Forecasters believe that there may not be any change in the key indicator that financial institutions, businesses and borrowers usually look forward to – the monetary policy rate.
The banking community closed 2017 with more confidence that cost of credit could lower, easing borrowing.
This was after the MPC’s decision to reduce the monetary policy rate, which is the rate at which the central bank lends to commercial banks.
When the MPC closed its November 2017 meeting, BoG Governor and Chairman for the MPC, Dr. Ernest Addison announced that the policy rate had been cut by 100 basis points to 20 percent from 21 percent.
It was the first time the policy rate had been reduced to that mark in about a year.
That notwithstanding, it appears bank have been slow at responding as shown by CBN’s analysis. “The average interest rate at which commercial banks lend to their customers remained unchanged at 25.7% in December 2017.
“This is the third consecutive time that the base rates have been kept unchanged at 25.7 percent,” CBN indicated.
It could be that banks have remained unsure of how long the central bank would keep the down trend of its policy rate.
The Economists Intelligence Unit, for example, has predicted that “The Bank of Ghana (BoG, the central bank) will struggle to balance its commitment to bringing inflation down with political and business pressure to lower interest rates in order to spur economic growth.”
In its November 2017 report, EIU predicted that “We expect political pressure to win out (the BoG has historically shown itself not to be entirely independent), and a slight bias towards spurring growth is likely, but not to the extent of risking an unbalancing of the local economy.”
It also said: “The benchmark interest rate will come down, but at a slower rate than demanded by those calling for cheaper credit, given that inflation is expected to remain above the upper-bound official target of 10% during the early part of the forecast period and rate rises in the US are likely to put pressure on emerging-market currencies.”
With inflation closing the year at a higher rate that estimated, it is unlikely the central bank will consider a reduction in the policy rate as it has largely looked to inflation trends to determine the policy rate.
Government missed its inflation target for year 2017 but the rate of inflation was still lover than it was at the close of 2016. Government’s end of year inflation target was 11.2 per cent but government recorded a rate of 11.8 per cent inflation the end of 2017.
According to the Ghana Statistical Service’s figures for December 2017, the year-on-year inflation rate as measured by the Consumer Price Index (CPI) was “11.8 percent in December 2017, up by 0.1 percentage point from the 11.7 percent recorded in November 2017.
“This rate of inflation for December 2017 is the percentage change in the Consumer Price Index (CPI) over the twelvemonth period, from December 2016 to December 2017.
“The monthly change rate for December 2017 was 1.0 percent compared to the 0.9 percent recorded for November 2017,” the GSS said.
By Frederick ASIAMAH
