Businesses hoping for cheaper borrowing costs and households expecting further relief on loan repayments may have to temper their expectations ahead of next week’s Monetary Policy Committee (MPC) meeting of the Bank of Ghana.
Despite the recent decline in inflation over the past year, the latest uptick in consumer prices has significantly reduced the likelihood of an immediate policy rate cut by the MPC.
This is according to Professor of Economics at the University of Ghana Business School, Prof. Patrick Asuming.
Ghana’s annual inflation rate rose from 3.7 percent in May to 5.3 percent in June. This reinforces the reversal started months prior. The development raises fresh questions about the pace at which the central bank can continue easing monetary policy.
Prof. Asuming believes the latest inflation outcome broadly reflects what policymakers had anticipated when they decided to pause interest rate reductions at their previous meeting.
“At the last meeting, they put a hold, and this expected pass-through is really one of the reasons,” he explained, referring to the delayed impact of earlier fuel price increases on transport and other non-food prices.
According to him, the central bank is likely to remain cautious because the economy has probably not yet experienced the full effect of those earlier cost increases.
“We still have to wait it out because I don’t think we’ve seen the full pass-through effect,” he said. “It might make sense for them to hold on for another meeting to see how things play out,” he added.
Prof. Asuming argued that maintaining the current policy rate would give the MPC additional time to assess whether inflationary pressures are temporary or becoming more persistent before resuming its easing cycle.
Once policymakers are satisfied that the remaining pass-through effects have faded and inflation is returning to its downward path, he believes they could restart policy rate reductions.
“So, from where I sit, the most likely decision should be to hold it for now,” he concluded.
His comments indicate that while businesses and consumers are eager for lower borrowing costs, the Bank of Ghana is likely to prioritise ensuring inflation remains firmly under control before delivering another rate cut.
