The seven member of the Monetary Policy Committee, (MPC), of Bank of Ghana and chaired by the governor, Dr Ernest Addison will this week begin its bimonthly meeting to review the health of the economy and also announce a new policy rate for the next couple months.
The policy rate is the rate at which universal banks borrow from the central bank as their last resort and also serves as a benchmark in setting the Ghana Reference Rate.
Although inflation has inched up marginally, some economists believe the policy rate could be maintained at 29.5 percent for the second consecutive time.
The recent price developments indicate that the inflation surge in the economy, witnessed since December 2021, has peaked. The latest readings since the January indicated consistent drops in headline inflation from the peak of 54.1 percent in December 2022 to 53.6 percent in January 2023, 52.8 percent in February, 45 percent in March and 41.2 percent in April, 42.2 percent in May and 42.5 percent in June this year.
The main drivers of this inflationary trend are food and non-food items, which account for 54.2% and 33.4% respectively.
The MPC meets bi-monthly to assess economic conditions and risks to the inflation outlook, after which a policy decision is made on positioning the MPR. Each decision signals a monetary policy stance of tightening, easing or stay put.
The policy decision is arrived at by consensus with each member stating reasons underlying a preferred MPR decision.
The primary objective of the Bank of Ghana is to pursue sound monetary policies aimed at price stability and creating an enabling environment for sustainable economic growth.
Price stability, in this context, is defined as a mediumterm inflation target of 8±2 percent. This implies that headline inflation should be aligned within the medium-term target band for the economy to grow at its full potential without excessive inflation pressures.
Other tasks for the Bank of Ghana include promoting and maintaining a sound financial sector with efficient payment systems through effective regulation and supervision. This is important for intermediation since risks associated with financial markets are also considered in the monetary policy formulation process.
