By:
Fred Yaw Sarpong
The
Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) will announce to the
general public as to whether it will maintain or increase the policy rate today
Thursday 6 February, 2014. This is after the committee has reviewed the state
of the economy.
The
expectations to today announcement by the regulator of the banking industry are
very high, as some economists have predicted the rise of the policy rate from the
current 16.00%.
Also,
Ghanaians especially business owners, both exporters and importers will
expected the managers of central bank to give measures put in place to rescue
the cedi from further falling. Bank of Ghana has indicated that, it will inject
some millions of Ghana cedis into the economy to save the cedis.
Some
financial experts have argued that the current challenges facing Ghana Cedis
have forced the central bank hold their
Monetary Policy Committee meeting earlier than scheduled date to
review the economy. The regulator was expected to meet on February 17,
2014 and engage journalists in a news conference on February 19, 2014.
It
likely a decision will be taken concerning the some major foreign currencies.
Barely some days back, Bank of Ghana directed all commercial banks in the
country to start charging interest on all foreign currencies accounts. This
directed generated a lot of debate, especially among financial experts.
Some
were of the opinion that the directive of the Bank of Ghana, asking commercial
banks to charge interest on foreign accounts was unacceptable since people
would rather keep their foreign currencies outside the banks.
Meanwhile,
Razia Khan, Standard Chartered’s Head of Africa Research has said that ‘we
still expect the Bank of Ghana to raise its Prime Rate by 100 bps to 17% when
it meets this week. Even if the assumption is that inflation is driven
primarily by one-offs, utility and fuel subsidy adjustment – as the Bank of
Ghana has suggested -and that these one-offs may well prove to be
temporary given the weakness of demand in Ghana - in our view, tightening now
would still be the correct thing to do.’
In
a statement issued by the bank in Accra said, with inflation accelerating to
13.5% year-on-year in December, last year and at risk of rising further,
policy have become a lot more accommodative in real terms. ‘Tightening by
100 bps now would arguably offset only partially some of the rise in inflation
seen since the last rate hike. In real terms, policy remains
accommodative, especially taking the magnitude of the fiscal deficit into
account,’ she added.
Khan
observed that cedi weakness poses additional risks to inflation, even if growth
is judged to be relatively subdued. But a rate hike would send a strong
message about the Bank of Ghana’s commitment to price stability. While
rate tightening on its own is probably not going to be sufficient to
single-handedly restore stability to the FX market, it would nonetheless
be an important complement to other efforts by the authorities to raise the
attractiveness of cedi-denominated assets.
‘In
the absence of any tightening, the risk is that the announcement of other
measures aimed at stabilizing the cedi will be sub-optimal,’ she emphasized.
She
stated that If the Bank of Ghana fails to tighten further now, and should the
GHS remain under pressure, the risk is that inflation might become more
generalized, and the Bank of Ghana will have to tighten even more aggressively
further out.
This
would raise the cost of domestic debt service in Ghana significantly,
potentially crowding out other spending, and weakening growth. For Ghana,
this is not an option. The growth trade-off from a modest tightening now
is far less severe than an aggressive tightening later, which might put at risk
government spending.
Stanchart
boss said should inflation in fact improve over the coming months, then there
is nothing to stop the Bank of Ghana from reversing any rate hike further
out. For now though, inflation is accelerating, and we expect to see a
policy response.
Comments
Post a Comment