The Monetary Policy Committee (MPC) of the Bank of Ghana begins its regular meeting today, running until Friday, September 27. The committee will assess the economic situation and decide on the policy rate, with the decision set to be announced at a press conference on Monday, September 30.
There are high expectations that the committee may reduce the policy rate, which has remained at 29% since January. This optimism is driven by a steady decline in inflation from 25% in April to 20.4% in September, and examples from the U.S. and South Africa, where policy rates have recently been cut for the first time since 2020.
However, analysts caution that a rate cut is not guaranteed. Inflationary pressures persist, with only a slight reduction from 20.9% to 20.4% in August. Additionally, the cedi remains weak compared to the South African rand, which has seen gains. Historical trends suggest inflation may rise in the last quarter of the year, in addition to increased government borrowing and election-related spending, potentially preventing a significant rate cut.
The International Monetary Fund (IMF) mission is also in town this week, and the team is expected to be keenly interested in the MPC’s deliberations. Given the IMF’s previous advice to the Bank of Ghana to maintain a tight monetary policy and enhance exchange rate flexibility to manage inflation, the MPC may be cautious about lowering the rate.
The business community and economists like Dr. John Kwakye from the Institute of Economic Affairs are advocating for a significant rate reduction to help lower lending rates. However, businesses may be hesitant to borrow heavily in the last quarter of an election year, opting to wait for the election results before making major investments. This suggests that even if the policy rate is reduced, its impact on borrowing might be limited.
Furthermore, with recent interest rate increases on one-year notes at 28.07% and 91-day treasury bills at 25.01%, it would not be surprising if the MPC decides to keep the policy rate at 29% for now.
