The Institute of Economic Affairs (IEA) is urging the Monetary Policy Committee of the Central Bank to increase the Monetary Policy Rate from 17% to 19% in their next announcement.
That is, the Institute is advocating for a 200 basis points increase in the rate.
According to the Director of Research of the Institute, Dr. John Kwakye, the increase is necessary to stem the recent continual rise in the country’s inflation rate.
Latest report from the Ghana Statistical Service revealed that Ghana’s inflation for April 2022 rose to 23.6%, a sharp increase from 19.4% in March 2022.
In order to will help narrow the widening gap between inflation and the policy rate, an increase in the prime rate by 200 basis point will among other things ease the risk of foreign currency outflows.
In a publication made by Dr. John Kwakye titled “How should the Bank of Ghana respond to the run-away inflation and the high cost of living in Ghana?’”, he stressed that “taking all of these factors together, it may be surmised that the PR should be raised by another 200 basis points to 19 percent.”
He therefore explained that “this will help narrow the gap with inflation and also ease to some extent the risk of foreign currency outflows. The adjustment will also provide some assurance to the markets that the BoG is committed to addressing the resurging inflation. Anything less than this may be interpreted as a weak response, which may be concerning to the markets.”
The factors that should determine the rate adjustment, Dr. Kwakye noted include the wide gap between the current rate of 17 percent and inflation rate of 23.6%; the policy tightening by major central banks, which increases the risk of foreign currency outflows from developing and emerging market economies and which could put renewed pressure on the cedi; and the increase in the policy rate by as much as 250 basis points two months ago, an increase that may not have fully exerted its impact.
The Monetary Policy Committee of the Bank of Ghana will from today hold its three-day Regular Meetings, which might end with a review of the Monetary Policy Rate due to the high inflation rate.