IMF backs BoG to keep policy rate tight over inflation scare

July 23, 2021

The International Monetary Fund (IMF) has urged the Monetary Policy Committee of the Bank of Ghana to keep the policy rate tight if inflation pressures persist.

The Monetary Policy Committee (MPC) is set to announce a new policy rate for the next few months on Monday after it took a rather surprising bold decision at its 100th meeting to cut the rate by 100-basis points to 13.5 percent, following more than a year-long tie of the rate at 14.5 percent.

But with inflation inching up in June and recording 7.8 percent, the directors of IMF, who have concluded Article IV discussions with government, have advised, in a report, that the MPC should keep the policy rate tight, thus, not to go for a further cut, should inflation pressure mount.

“Directors agreed that the monetary policy stance remains broadly appropriate, while noting that tighter policy would be needed if inflationary pressures materialise,” he said.

At the last MPC meeting when the rate was cut, inflation had just dropped to 7.5 percent in May from the 8.5 percent it recorded the previous month. However, there was a risk of inflation shooting up following the passing of new taxes in May by parliament and fuel price increment in June. But Governor of the Bank of Ghana, Dr. Ernest Addison, maintained there is no cause for fear, as the committee projects those developments will not lead to a surge in inflation in the near-term.

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