The Monetary Policy Committee (MPC) of the Bank of Ghana is set to review the monetary policy rate (MPR) on Monday, November 18, 2016, with the primary goal of minimizing inflation, increasing productivity and ensuring stability in the domestic currency.
The previous five meetings held this year saw a decision to hold the key policy rate at 26% to ease the past-through effect of a rise in previous monetary policy rates on consumer price inflation.
The key variables considered in the last MPC decision include easing inflation pressures, improvement in consumer and business sentiments, lower current account deficit, positive growth outlook, stable power supply and minimal cedi depreciation among others.
On the global front, the steady fluctuations in global commodity prices, persistent decline in China’s inflation rate, weakening of the British pound after the Brexit, and a hold in U.S key policy rate ahead of the U.S elections, made the decision to hold the monetary policy rate at 26%, rather easy for the MPC.
However, the recent uprise in China’s inflation from 1.3% in August 2016 to 2.1% in October 2016, slowdown in China, the growing uncertainty after BREXIT and subdued recovery of the global economy signals a much confusing stance for the MPC in the upcoming meeting.
The decision is further blurred by the recent decline in inflation to a more than two year low of 15.8% in October 2016. This was largely due to a 0.3% reduction in food inflation and a 2.2% reduction in non-food inflation, from September 2016 levels. Still and all, the number of subgroups classified under the non-food and food inflation groups that recorded rates above the group’s average remained the same.
Additionally, the cedis performance after the last MPC review has being splendid. The cedi gained some 3.8% and 4.12% against the British pound and Euro respectively, but depreciated marginally by 0.3% against the US dollar after the last review in September, 2016.
Coupled with the expected rise in gross foreign assets, from the US$750 million Eurobond, the US$2 million cocoa syndicated loan, US$116.2 million third tranche of the IMF programme and the proceeds from the recently oversubscribed government of Ghana USD denominated bond among others, we expect the cedi to remain stable, even as consumers and businesses increase their demand for forex ahead of the elections and yuletide.
Thus, clearly, there is no better time to reduce the monetary policy rate by at least 100 basis points, than now. This is expected to lower lending rates and offer some respite to private businesses who need additional capital ahead of the festive season.
Eventually, this move may slow the rising trend in non-performing loans which stood at 19.1% as at July 2016 and encourage investments in commercial banks.
Source: GN Research
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