The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG), has once again, been confronted with the challenge of fixing the appropriate policy rate for the next few months, in the midst of unfavourable economic conditions.
Reducing the rate will push government’s expansionary policy, whereas increasing it will also incur the wrath of the business community.
For the seventh consecutive time, the Committee has maintained the rate at 14.5 percent over heightened risk to inflation, ballooning public debt, a depleting fiscal situation, slow economic growth among others, which have all been exacerbated by the second wave of the COVID-19 pandemic experienced since the beginning of this year.
The Monetary Policy Committee’s hope of seeing inflation come down was hampered by the rate for February 2020, which saw inflation climb 10.3 percent from the 9.9 percent recorded a month earlier.
This indicates a movement outside the medium-term target band of 6-10 percent. At its last meeting, the MPC projected headline inflation to return to target in the second quarter of 2021, adding that risks to inflation in the near-term are broadly contained, but short to medium-term risks emanating from the fiscal expansion and rising crude oil prices.
This moved the Committee to maintain the rate.
Taking inflation into consideration, the possibility of a cut in the rate is unlikely. With the fiscal situation, the MPC noted, a gloomy outlook especially as the pandemic rages on.
The 2021 budget shows the fiscal deficit for 2020 will hit 11.7 percent, exceeding the revised target by 30 basis points.
The MPC admitted in its last meeting that the prospects of a sharp fiscal correction in 2021 looks unlikely amid the second wave of the pandemic, which will require additional spending to provide testing and vaccines.
