Bank of Ghana retains its 16% MPR: What are the economic implications thereof?
The Bank of Ghana's Monetary Policy Committee kept its Monetary Policy Rate unchanged at 16 per cent at its September meeting. To discuss the implications for Ghana's economy going forward, Collins Appiah, Economic Advisor at Services and Integrity Savings and Loans joins CNBC Africa for more.
Tue, 24 Sep 2019 15:08:02 GMT
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AI Generated Summary
- Inflation remains within target range, supporting the decision to keep the policy rate steady at 16 per cent.
- Challenges in domestic revenue mobilization and fiscal deficit highlight the need for improved tax collection and expenditure management.
- Coordination between fiscal and monetary policies is crucial to addressing Ghana's fiscal challenges and ensuring economic stability.
The Bank of Ghana's Monetary Policy Committee (MPC) recently decided to retain its Monetary Policy Rate (MPR) at 16 per cent during its September meeting. This decision was largely expected by industry experts, given the current economic indicators in Ghana. Collins Appiah, Economic Advisor at Services and Integrity Savings and Loans, shed light on the implications of this decision in an interview with CNBC Africa.
One of the key indicators that the Bank of Ghana considers when determining the policy rate is the growth of the economy and inflation targeting. Inflation in Ghana has remained within the central bank's target band, despite concerns about possible utility price hikes. With the next meeting scheduled for November, experts believe it is prudent to wait and monitor the situation before making any adjustments to the policy rate. The country's GDP continues to grow steadily, indicating a robust economy, even in the face of challenges like the impact of oil prices.
While the central bank acknowledged the strength of the economy and a positive medium-term outlook, it also highlighted concerns about the fiscal situation. The government's revenue fell short of expectations due to lower international trade taxes and import revenues. On the expenditure side, the government exceeded its budget target, leading to a significant fiscal deficit. Addressing these fiscal challenges is crucial to ensuring economic stability and growth, requiring coordination between fiscal and monetary policies.
Collins Appiah pointed out that domestic revenue mobilization remains a weak spot for Ghana's fiscal authorities. Despite efforts to broaden the tax base and enhance tax collection mechanisms, a large segment of the informal sector continues to evade taxation. This poses a significant challenge as the informal sector constitutes a substantial portion of the economy. Improving tax compliance and enhancing the identification system for taxpayers are essential steps that the government needs to take to strengthen domestic revenue mobilization.
In conclusion, the decision to maintain the MPR at 16 per cent reflects a cautious approach by the Bank of Ghana amid stable inflation and economic growth. However, addressing fiscal challenges and enhancing revenue mobilization are critical steps to sustain Ghana's economic momentum and promote long-term stability.