After the simultaneous introduction of the Ghana Gold Coin and a Policy Rate Cut, an Economist at the University of Ghana Business School, Professor Patrick Asuming is questioning the logic behind what he describes as contradictory moves.
On Friday, September 27, 2024, the Monetary Policy Committee (MPC) of the Bank of Ghana announced a 200 basis point cut in the monetary policy rate, bringing it down from 29% to 27%. This marks the first rate reduction since January 2024.
On the same day, the Central Bank further announced the introduction of a Ghana Gold Coin aimed at mopping excess liquidity in the economy. The Bank says it is an investment opportunity where Ghanaians can purchase a gold coin with their excess money and hence control inflation.
But speaking in an interview with The High Street Journal, Prof. Asuming noted that the whole exercise of the BoG appears confusing and contradictory to him.
He argues that cutting the policy rate typically encourages lending and stimulates economic activity, thereby injecting more money into the system. On the other hand, there is the introduction of the Ghana Gold Coin initiative designed to absorb excess liquidity thereby reducing the money supply in circulation.
He therefore insists that slashing the policy rate to 27% to pump money into the economy while on the other end introducing a liquidity-absorbing policy like the Ghana Gold Coin is counter-productive.
The economist labels the move as “confusing and contradictory,” arguing that the two policies seem to be moving in opposite directions.
“But that is the irony, introducing Gold Coins to mop up excess liquidity while at the same time cutting the monetary policy rate, it seems very contradictory to me. If your goal is to mop up excess liquidity, why on earth are you cutting the monetary policy rate so it all seems quite confusing and contradictory?” he said.
He however noted that the public will give the Bank of Ghana the benefit of the doubt as the situation is monitored to ascertain the outcome.
“It does not seem to me at the moment that it is the right course of action. Let’s wait and see how that pans out.,” Prof. Asuming indicated.
