Economist at the University of Ghana Business School, Prof. Patrick Asuming has questioned the policy rate cut by the Monetary Policy Committee of the Bank of Ghana indicating that it does not appear to be a good decision at the moment.
The MPC of the Bank of Ghana on Friday, September 27, 2024, announced a cut in the monetary policy rate by 200 basis points. This reduction in the basis points has resulted in the policy rate decreasing from 29% to 27%. This is the first reduction in the policy rate since January 2024.
Speaking in an interview with The High Street Journal, Prof. Asuming admitted that the cut in the rate by the MPC came as a big surprise to him.
Justifying his views, he explained that policy rates are generally cut to propel economic growth. He added that Ghana’s economy has been doing better growing at a rate higher than projected even at the prevailing conditions.
He therefore cannot fathom why the Central Bank will decide to cut the rate further citing that although inflation has been on a downward trajectory it is still above the medium-term target of 8+/- 2%.
With the prevailing economic growth trajectory and relatively high inflation levels, Prof. Asuming is of the opinion that the rate ought to have been maintained.
“It came as a big surprise to me and more so the quantum of the reduction. I felt that the rate was going to be maintained. There are two arguments for reducing the rate. The first one is the fact that inflation has been trending downward and then the fact that Central Banks in advanced countries have also been cutting their rates,” Economist explained.
He continued that, “but then when you look at the fact that, according to the statement and the Summary of Economic and Financial Data, it shows that the economy on its own is doing much better than projected so even though inflation is trending downwards is still way above the medium-term target. I was very surprised to see that the Central Bank has cut the policy rate by 200 basis points.
Although the economist expected the rate to be maintained considering the prevailing economic conditions, he noted the cut would only be good news for businesses if it leads to a reduction in lending rates.
