Current economic environment and IMF programme may drive MPC to maintain policy rate again.

Today, July 23, the Monetary Policy Committee (MPC) of the Bank of Ghana will commence its regular meeting to review the state of the economy. Held every other month, this meeting also serves to announce the policy rate, which indicates the direction of interest rates in Ghana.

This session is particularly notable as it follows Ghana's recent debt restructuring agreements with its main external creditors. Coinciding with the Mid-Year Budget review presentation to Parliament, the MPC will have ample information to assess the economy's performance and consider measures to restore stability.

The meeting comes on the heels of declining year-on-year inflation, which stood at 22.8% in June, down from 23.1% in May when the last meeting was held. While the decreasing inflation rate could suggest a reduction in the policy rate from its current 29%, the month-on-month inflation of 2.9% in June limits the scope for significant changes.

Furthermore, the Committee will be influenced by the International Monetary Fund (IMF) Board's statement after approving Ghana's third tranche of $360 million on June 28. The IMF emphasised, "Going forward, maintaining an appropriately tight monetary stance, and enhancing exchange rate flexibility are of the essence, along with timely implementation of Fund's advice on safeguards."

This guidance suggests the MPC may lean towards keeping the rate unchanged unless there is a clear outlook for a significant reduction in inflation in the coming months.

However, economists such as Dr. John Kwakye of the Institute of Economic Affairs continue to challenge the MPC's approach of maintaining a high policy rate to combat inflation. In his latest post on X, Dr. Kwakye questioned, "Are implementing tight monetary policy measures and increasing reserve ratio, the solution to Ghana's inflation that is being fueled by food prices, fuel prices, utility tariffs, transport fares and exchange rate depreciation?"

The perspectives of economists like Dr. Kwakye, along with others sharing similar views, cannot be entirely ignored by the Committee. The final decision on the policy rate and the economic review will be revealed on Monday, July 29, when Governor Dr. Ernest Addison addresses the media regarding the meeting's outcomes.