The Bank of Ghana (BoG) faces a choice between contending with inflation that has quickened to a six-month high and countering price growth by reversing its January rate cut.
Speaking to Bloomberg an economist at the finance department of the University of Ghana Business School, Patrick Asuming said “Although inflation has started going up, I don’t expect the monetary policy committee to start increasing the rate so quickly, if they do it will confirm the suspicion that the last rate cut was indeed a mistake.”
Given that the currency has stabilized somewhat, the MPC may opt to “wait and see,” he said.
Issues likely to dominate discussions as the Monetary Policy Meeting proceeds includes firmly stabilizing the cedi and reducing the cost of credit.
The committee would be reviewing the health of the economy and taking decisions that would have an impact on the level of inflation. But what is the committee about and what can we learn?
What is the MPC?
This abbreviation is one we often hear but what does it mean?
It simply is a committee in the Bank of Ghana responsible for 'responsible for formulating and implementing policy in the areas of money, banking and credit with the main aim of maintaining stable prices conducive to balanced and stable economic growth as well as promoting and preserving monetary stability. '
The Monetary Policy Committee's aim is to ensure price stability (inflation) and it conducts with some 'tools' particularly the Policy rate. It sets a policy rate that will ensure a reasonable level of inflation in the economy. The rate is currently at 16%
Who makes up this committee?
According to the Bank of Ghana Act as amended, the Bank’s Monetary Policy Committee (MPC) is made up of seven (7) members – the Governor, the two Deputy Governors, the Head of the Bank’s Economic Research Department, the Head of Treasury Operations, and two external members appointed by the Board.
The appointment of external members is designed to complement the expertise within the Bank of Ghana.
How many times do they meet?
The Committee meets on a bi-monthly basis or 6 times a year. January, March, May, July, September and November.
The committee will sit for normally three days and come out with their decision and findings through a press conference.
What is discussed at these meetings?
The global economy, domestic economy, exchange rate, banking and credit system
The policy rate decision is supposed to influence the money supply in the economy, the level of credit in the economy and the level of aggregate demand for goods and services in the economy which will influence the general price level of goods and services in the economy. This is the TRANSMISSION MECHANISM.
Often the cost of credit is at the heart of public discussions when the MPC meet, but what can we learn about this relationship? Well, let’s watchout for the Bank of Ghana’s press conference on Monday, May 27, 2019.
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