BoG policy rate hike promises real trouble — Prof. Gatsi

Prof. John Gatsi has said the 200 basis points increment in the latest BoG policy rate will bring more trouble.

He noted that the latest increment is in response to risk to the economy, high inflation, weak financial intermediation and fiscal stress which will trigger lending rate hike.

Speaking to CNBC Africa on the latest monetary policy rate hike, Prof. Gatsi explained that BoG maybe misdiagnosing the problem.

According to him, the measures taken in an environment of volatile depreciation promise rather further inflation.

He explained that high inflation and upward lending rate will undermine government contracts execution and create new levels of arrears due to cost implications for the procurement of materials.

Prof. Gatsi stressed that a number of projects maybe abandoned due to inflation, depreciation and cost of borrowing.

He warned that there maybe too much pressure on the banks as cost of mobilizing funds continues to increase with the possibility of distorted returns on placement of funds with the banks.

The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has increased the policy rate by another 200 basis points to 19%.

This is the second time in 12 months that the Central Bank has increased the key rate by 200 basis points.

In his address to the media, Governor of the Central Bank, Dr. Ernest Addison, noted that risks to inflation are on the rise, hence the need to take a decisive stance to address current inflationary pressures.

“Inflation expectations by consumers, businesses and the banking sector have heightened. The risk to inflation outlook are on the upside and emanate from the availability of inputs for food production, imported inflation, continued upward adjustments and ex-pump petroleum prices and transportation costs, possible increases in utility tariffs and potential wage pressures. The second round effect of these administered price adjustments would further amplify inflation pressures on the outlook.”

“These considerations show that with the strong rebound in growth and the closing of the negative output gap, the balance of risk is clearly on inflation. The MPC took the view that it needed to decisively address the current inflationary pressures to re-anchor expectations and help foster macroeconomic stability. On the basis of the above assessment, the Committee decided to raise the policy rate by 200 basis points to 19%.”