The Finance Minister, Mr Seth Terkper, expects the stability in the fiscal side of the economy to provide comfort to the Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) and possibly prompt the committee to consider easing its benchmark rate – the policy rate.
After leaving the rate unchanged at 26 per cent since November last year, Mr Terkper believes a rate ease is now possible, as the government’s strong adherence to its budget targets helped to stabilise the economy and keep inflation within target band.
“They (MPC) have always taken the fiscal into account and one will assume that anything that improves the fiscal will ultimately impact positively on that decision,” the minister said in reference to the conclusion the MPC will arrive at after a technical review of the economy on November 18.
“However, ultimately, it is a decision for the central bank to make,” he told journalists at a news conference in Accra on November 15.
The MPC meeting is a quarterly ritual by a seven-member committee to review developments in the economy. It mainly assesses the implications of developments in each sector of the economy – be it the fiscal, monetary, real or external – on the other.
The meeting then concludes with the announcement of a new decision on the BoG’s key policy tool, the policy rate, which the bank uses to stabilise prices.
As a central component of the bank’s inflation targeting (IT) mechanism, the policy rate has been maintained at 26 per cent for four consecutive times after missed deficit targets combined with declining commodity prices, weak exchange rate and bearish consumer sentiments to keep inflation above targets.
As the fiscal side continued to reel under pressure, non-performing loans (NPLs) remained relatively higher and that ultimately marred the prospects of a reduction in the policy rate.
However, with inflation now on a downward trend, declining from 17.2 per cent in September to 15.8 per cent in October; the cedi strengthening against its counterparts and rates on government coupons experiencing marginal declines, Mr Terkper said dropping the policy rate could now be a good reflection of the successes chalked up so far.
“The governor and his team will make their decision on the monetary policy rate and I know that one of the inputs is how the deficit is trending and the possibility of government being in the market to either crowd out or put pressure on interest rates. I believe strongly that if they see the trend that is emerging, and we hope they see it, then that will be a factor,” he said.
Optimism
Although third quarter data on the economy are yet to be released, the minister had previously explained that strict adherence to budgeted expenditure and the smooth implementation of the Public Finance Management Act had ensured that the government remained within targets agreed under the three-year Extended Credit Facility programme with the International Monetary Fund (IMF).
This complements the recent move by the Finance Ministry to reduce its presence in the short-term market by using long-term finances to redeem the short-term debts, which were hitherto rolled over.
Mr Terkper explained that a major part of the GH¢ 438 million that was raised through the sale of a 10-year bond will be used to execute that agenda – redeem maturing treasury bills and bonds.
“If we get that right, then we will not need to always be in the market and that will impact positively on rates,” he said at the press conference.
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