MPC meeting ends

… Policy Rate to be announced on Monday

The latest meeting of the Monetary Policy Committee of the Bank of Ghana ends today, Friday, November 23 in Accra.

The three day meeting, which began on Wednesday has been deliberating on the state of Ghana’s economy, its prospects and challenges going forward and consequently, the direction and magnitude of change in interest rates required to most importantly, keep inflation within the target band of between 6% and 10%, and secondly, maximize economic growth.

The Committee will decide on the benchmark Monetary Policy Rate for the next two months, but the decision will not be made public until next Monday, when the BoG Governor, Dr Ernest Addison, addresses the media at the customary press conference following each MPC meeting.

Corporate Ghana is anxiously awaiting the decision since the MPR influences the direction of both lending and deposit rates set by the banks, and the magnitude of any changes in rates. The MPR has been held steady at 17% for the past four months, after being gradually reduced from an all time high of 26% reached by mid 2016.

It is still uncertain whether the Committee will opt to keep the MPR at 17% for another two months or slash it by up to 50 basis points (0.5%). While corporate Ghana would prefer a reduction since that would instigate a fall in the cost of credit, strong cases can be made for both a reduction and the maintenance of the current rate.

The case for a 50 basis point reduction is predicated on falling inflation, the restoration of the cedi’s stability against the US dollar and the need to provide a boost for slagging economic growth.

Consumer price inflation for October was 9.5%, well within the BoG’s target band and in fact the lowest level in well over half a decade. It also reflects an ongoing fall – inflation for both August and September this year was 9.9%.

The cedi, which has fallen faster this year than it did last year, now seems to have stabilized as well. By Thursday, November 22 it was trading at GHc4.8390 to a dollar, down from a peak of GHc4.96 in October. The cedi has fallen by some 7% against the dollar so far this year but now currency analysts think the worst is over despite a likely further fall during the end of year festivities, traditionally brought about by a spike in consumerism. For instance Standard Bank, the Johannesburg headquartered parent of Stanbic Bank Ghana now reckons that the cedi’s exchange rate will stay below the psychological limit of GHc5 to a dollar through to the end of this year.

The other consideration favouring a cut in the MPR is the need to accelerate Ghana’s economic growth. Year on year real Gross Domestic Product growth by the second quarter of 2018 was 5.4%, well below government’s 6.5% target for the year, and less than half of the 11.1% growth recorded as the commensurate period of 2017. Government  will be looking to support from the BoG’s monetary policy to boost economic growthy which looks set to decline for 2018 from the 8% achieved in 2017, and which has been targeted at for 2019.

However, the MPC will also be looking at the fragility of the cedi’s recent recovery, especially with an interest rate hike by the US Federal Reserve Bank still on the cards before the end of this year. Higher US interest rates make cedi denominated assets relatively unattractive, thus putting demand pressure on the available foreign exchange.

Besides this the BoG itself wants inflation to fall further to the midpoint of its target band – which is 8% by early 2019 and this requires still tight monetary policy. Besides, rising oil prices on global markets carry the threat of further inflationary pressures as well.

By Toma Imirhe