Economist calls for further reduction in policy rate

Business News of Tuesday, 18 July 2017

Source: citibusinessnews.com

2017-07-18

Dr. Eric Osei Assibey 620x330 1Dr. Eric Osei-Assibey is an Economist

As the Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) prepares to meet, some financial observers have maintained that it will be prudent for the central bank to reduce the policy rate for the third consecutive time.

The BoG reduced the Policy Rate from 23.5 percent to 22.5 percent in the last meeting led by governor, Dr. Ernest Addison.

This was after the immediate past governor; Dr. Abdul Nashiru Issahaku reduced it from 25.5 percent to 23.5 percent.

Speaking to Citi Business News ahead of the meeting, Economist, Dr. Eric Osei-Assibey justified the need for further 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”.

The BoG is expected to announce the conclusions of its meeting on next Monday

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