The 96th regular meeting of the Monetary Policy Committee of the Bank of Ghana will end today. The three day meeting, which started on Wednesday will assess developments in the global and domestic economies over the past two months and will consequently take a decision on the benchmark Monetary Policy Rate, which is the rate at which the central bank lends to commercial banks to cover their short term liquidity needs.
Although, since the conclusion of the recent financial sector reforms conducted by the BoG early last year, commercial banks have deliberately adopted a strategy of lending among themselves on the interbank market, rather than a recourse to the central bank, the MPR still serves as a crucial indicator of which way the financial intermediation industry regulator wants interest rates to go.
The MPC consists of central bankers, government representatives and representatives of the organized private sector. The BoG adopts an inflation-targeting monetary policy stance, which supposedly means that decisions on the MPR take the fight against inflation as the primary consideration. In actual fact though, the need to support economic growth is given the same quantitative weight as inflation in the decisions of the MPC. The curbing of inflation requires higher interest rates while support from economic growth requires lower interest rates so the MPC has to find a balance between the two. It uses economic and financial data supplied by the BoG’s research department.
The most widespread belief is that the MPC will retain the MPR at 14.5 percent where it has been since March this year when it was cut by 150 basis points from an erstwhile level of 16.00 percent in response to the economic activity dampening effects of the arrival of the global COVID 19 pandemic in Ghana. However private sector chieftains, in the weeks ahead of the latest meeting had been lobbying for a further cut in the MPR on the grounds that inflation is on the brink of falling back to within the 8.0 percent plus or minus two percent target band set by the BoG – inflation was 10.4 percent in October – while economic growth looks set to slump to not more than two percent this year because of the effects of the pandemic.
But it is most likely that their wishes will not be granted as the MPC is reportedly ready to retain the 14.5 percent rate out of worries over the potential inflationary risks of this year’s expected unprecedented 11.8 percent fiscal deficit as well as the traditional spike in inflation in December brought about by end of year consumerism during the Christmas and new year festivities.
The new MPR valid until the next MPC meeting at the end of January 2021 will be announced at a press briefing on Monday, November 23.