Professor of Economics and Finance at the University of Ghana Business School, Prof. Godfred Alufar Bokpin has contended that the recent cut in the policy rate by the Monetary Policy Committee was to respond to pressures by the government and the International Monetary Fund (IMF).
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.
But speaking in an interview with The High Street Journal, Prof. Bokpin argued that the decision by the MPC was largely due to the pressures of reduction in inflation and also largely the much-touted economic recovery by the IMF and the government.
The Economist explains that the government for some time has been trumpeting that it has turned around the corner of the economy indicating a robust recovery from the devastation of the pandemic and the Russia-Ukraine crisis. The IMF report also admitted that the economy of Ghana has taken a positive turn after the pandemic.
Given that the policy rate has been largely maintained at the peak of the crisis, Prof. Bokpin argued that these reviews by the government and the IMF mounted what he describes as “considerable pressure” on the Central Bank to act on the policy rate.
“There is considerable pressure on the Central Bank to respond to the market development, that is the reduction inflation and also the song that is being sung around that the economy has turned the corner. If you look at the fiscal side, the government has been talking about recovery, which is turning around the economy. The IMF report is also talking about the economy taking a turn,” Prof. Bokpin explained.
He added that “meanwhile, the policy rate has remained where it was at the peak of the crisis largely. Then if you look at the disparity between policy rate and inflation rate, the real return there is too wide.”
Prof. Bokpin further criticized the effectiveness of the monetary policy rate in mopping up excess liquidity in the economy. The economist is of the view that the monetary policy rate has not really worked in mopping up the excess liquidity to control inflationary pressures.
This ineffectiveness of the monetary policy rate, Prof. Bokpin believes is necessitating new measures such as the increase in the tiered required reserve ratio and the latest Ghana Gold Coin.
“While the Bank of Ghana has kept that with the hope of mopping up excess liquidity, it has not worked. The truth of the matter is, the policy rate has not worked. It’s becoming a bit irrelevant. You see that there is so much excess liquidity in the market,” he maintained.
He added that, “in fact, they have also introduced other interventions including the tiered required ratio where depending on your relationship between your deposit and your loan you keep some reserves.”
