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BoG must reduce policy rate substantially– Economist

July 24, 2017, 1:30 p.m.

As the Governor of the Bank of Ghana, Dr. Ernest Addison announces the decision of Monetary Policy Committee on the policy rate in some few hours, some economists have maintained that it will be prudent for the central bank to reduce the policy rate in the third consecutive time.

The Bank of Ghana reduced the Policy Rate from 23.5 to 22.5 percent in the last meeting by led by governor, Dr. Ernest Addison. This was after the immediate past governor; Dr. Abdul Nashiru Issahaku reduced it from 25.5 to 23.5 percent
Speaking to Citi Business News ahead of the announcement, Economist, Dr. Eric Osei Assibey justifies the need for substantial reduction to bridge the gap between inflation rate and the policy rate.

“I expect the Monetary Policy Rate to come down, because as it stands now it’s still quite high. Inflation is gradually getting into the single digit, so the spread between the policy rate and inflation rate for me, it is still very high, in fact the highest across the globe, in all inflation targeting countries,” he explained.

He pointed out that it will beneficial to close the gap between the two indicators to have an effect on interest rates.

“Systematically the central bank must reduce the spread between inflation and the monetary policy rate. If the spread is too wide it makes the monetary policy rate ineffective in a way, and it also keeps the average interest rates high”, he observed.

Dr. Osei-Assibey stated that this period is the best time as inflation trends down.

“Now that inflation pressures seem to be going down and the economy appears to be on track”.