The policy rate will exceed the rate of inflation – Financial expert

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Even before the Bank of Ghana announces its key rate on Monday, March 21, 2022, the Central Bank’s base rate is expected to rise between 15.8% and 19.2%.

According to Valley View University Chief Financial Officer Dr. Williams Peprah, the Central Bank’s base lending rate since 2021 has been above the rate of inflation.

Following the inflation rate of 15.7% for the month of February 2022, the key rate is expected to be higher.

“The monetary policy rate since 2021 has always been higher than the inflation rate. The average gap between these two rates for the past year has been 3.5%. As the February 2021 inflation rate was of 15.7%, the MPC rate for the coming quarter is expected to be set within a range of 15.8% to 19.2% by the Bank of Ghana,” he pointed out.

This will mean an estimated increase of 130 to 470 basis points in the MPC rate for March 2022.

“Therefore, it is expected that 200 basis points may be added to increase the MPC rate by 14.5% for the March 2022 result. If the BOG tries to remedy the free fall of the Ghana Cedi against foreign currencies , an MPC rate should be set at 19.2%,” he explained.

This, he said, could cause interest rates to rise and make government securities attractive and prevent the hoarding of foreign currency as an investment. The impact will be that the cost of funds will be expensive and slow down the economy for a short term strategy.

MPC Rate v Inflation Rate

Month MPC rate % Inflation rate % Difference %
the 21st of February 14.5 10.3 4.2
March 21st 14.5 10.3 4.2
Apr-21 14.5 8.5 6
May 21 14.5 7.5 7
Jun-21 14.5 7.8 6.7
Jul-21 13.5 9 4.5
21st of August 13.5 9.7 3.8
Sep 21 13.5 10.6 2.9
21st of October 13.5 11 2.5
Nov-21 14.5 12.2 2.3
December 21 14.5 12.6 1.9
Jan-22 14.5 13.9 0.6
February 22 14.5 15.7 -1.2
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