Given the relative stability in the key drivers of the policy rate – particularly inflation and the exchange rate – the central bank has room to further clip its policy rate today, or at worst stay it at 20 percent some analysts have said.
“If we look at the period since the last MPC meeting, the inflation rate has been stable – and the exchange rate, too,” Prof. John Gatsi, Economist at the University of Cape Coast, told the B&FT.
Inflation for December was 11.8 percent higher than the 11.2 percent end-year target, but far lower than the 15.4 percent recorded end-2016.
The cedi’s performance against major currencies has been mixed. Since the year began, it has depreciated barely 0.2 percent against the dollar, and about 1 percent against the pound sterling and euro.
But Prof. Gatsi said despite the exchange rate performance and increase in the prices of petroleum products, as well as government’s inability to meet revenue targets last year, the central bank does not have enough reasons to tighten the monetary policy stance.
Prof. Gatsi however cautioned businesses that even if the policy rate goes down, lending rates may not follow suit immediately, as conditions that hold them high remain very much in place.
“As we speak, non-performing loans (NPLs) are still high – and apart from government yet to clear all of the energy sector debt, the clampdown on illegal miners also meant that those who took credit facilities from their banks will be unable to pay, leading to a worsening of the bad loans on banks’ books,” he said.
Another economist and lecturer at the Ghana Institute of Management and Public Administration (GIMPA), Dr. Raziel Oben-Okong, also said the central bank is likely to continue on the path of loosening its monetary policy stance on account of fairly stable macroeconomic conditions.
Dr. Oben-Okong stated that there has not been enough volatility on the macroeconomic front to warrant a rate hike. At worst, it will maintain the rate, he said.
Policy rate history
The policy rate has since January 2017 seen a gradual reduction from 25.5 percent to 20 percent as at end of last year. A reduction would see the rate become the lowest since September 2014, when it stood at 19 percent.