[ 2016-07-19 ]

BoG Governor justifies maintaining policy rate at 26%
The governor of the Bank of Ghana (BOG) Dr. Abdul
Nashir Issahaku has justified why the Monetary
Policy Committee kept the policy rate at 26%,
unchanged.

He argued that increases in ex-pump prices of
petroleum products continue to impede the central
bank’s disinflation process.

Reacting to expectations that the policy rate
should have rather been reduced considering the
stability in the economy, Dr. Issahaku said it is
too early to reduce the policy rate considering
inflation which currently stands at 18.4%.

“You want to know why we retained the policy
rate at 26%, when your expectation is to have the
policy rate reduced. Let me state that until the
disinflation process is well grounded I think it
will be too soon to start reducing the policy
rate,” he said.

Dr. Issahaku further explained that stability in
the other macro and micro economic variables are
not enough to reduce the policy rate.

“As I mentioned earlier, the inflation path and
time horizon has moved outward and with this we
cannot at any rate be reducing the policy
rate.”

This comes at a time that, the central bank’s
monetary policy committee, kept its base lending
rate at 26% ,citing the inflationary trends and
the relative stability in the depreciation of the
Cedi as the major reasons for the decision.

Though the Governor in May this year was
optimistic of achieving the BoG’s inflation
target of 8 percent plus or minus 2 by close of
year, he expressed concerns over risks such as
petroleum price hikes and utility price hikes.

Analyst shocked at policy rate unchanged

Meanwhile, a Senior Lecturer of Finance at the
University of Ghana Business School, Dr. Lord
Mensah has expressed surprise at the Bank of
Ghana’s decision to maintain the policy rate at
26%.

According to him, macroeconomic indicators such as
the decline in inflation should have reflected in
a drop in the policy rate.

“I think it is a surprise, with the maintenance
of the policy rate. There is some kind of
uncertainty around it as one is not sure when the
rate will come down or move up. But for me looking
at all the indicators on the ground, if you are
really abreast with all that is happening on our
macro-economic front, then I presume the rate
should have come down,” he remarked.

“We have seen inflation going down and most of
the time the monetary policy rate is basically on
inflation targeting and if inflation is coming
down, it shows that there is a signal that
interest rates can come down for businesses to
borrow,” he added.

He was however of the opinion that the central
bank may have maintained the rate due to low
liquidity.

“Now, if inflation is coming down, that means we
don’t have much money chasing more goods in the
economy and therefore this only shows that there
is lack of money in the system,” he explained.

Source - citifmonline.com

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