Would Bank of Ghana follow IMF suggestion to raise prime rate?

bank-of-ghanaThe Monetary Policy Committee (MPC) of the Bank of Ghana will today Tuesday July 21, 2009 hold a press conference to put before Ghanaians and the entire world what Ghana’s economy is after a review meeting that took about a week.

The conference to be addressed by the MPC chairman, Dr. Paul Acquah who is also the governor of the Ghana central bank, will address the trends in the economy and then announce a prime rate. But what watchers of the economy are unsure of is whether the MPC would heed a suggestion by the International Monetary Fund, (IMF) to tighten monetary policy and raise the prime rate.

The IMF recently gave the country a $1 billion loan to support the economy. The loan agreement which was signed last week was the highest loan ever to be given to an African country by the Bretton Woods institution.

On signing the loan agreement the IMF suggested that Ghana should tighten monetary policy to reduce inflation which has been pushed up by high cost of food, strong domestic demand and currency depreciation.

In its annual review of Ghana’s economy, the IMF said, “with a tighter fiscal stance, it would be an opportune time for monetary policy to reduce inflation, therefore, in light of the negative real interest rates and the need to increase credibility of the inflation targeting framework, (IMF) directors supported a further tightening in the monetary stance.”

Ghana’s annual inflation rate rose marginally to 20.74 per cent in June up from 20.06 percent in May.

The increase is 0.68 over the annual inflation rate of 20.06 per cent registered in May.

The Ghana Statistical Service attributed the rise to increase in fuel prices.

“The cost of transport contributed largely to the increase. This may be the negative effect of the last adjustment in petroleum prices,” its officials said.

The country’s exports have also suffered considerable fall as a result of the global economic crisis.

The business community in Ghana is not amused about the prospects of a raise in the prime rate which currently stands at 18.5%. The Association of Ghana Industries (AGI) is uncomfortable with the current rate which has raised the cost of credit to prohibitive levels and therefore, is hoping for a reduction. But would that happen? Or the MPC would follow the suggestion of the IMF and raise the prime rate?

That would be known after the press conference. Stay tuned as ghanabusinessnews.com brings you details.

By Emmanuel K. Dogbevi

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