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Policy rate hike comes at a wrong time; government must be financially disciplined – IPPA

Fri, Apr 4 2025 10:37 PM
in Business, Ghana General News
policy rate hike comes at a wrong time government must be financially disciplined ippa
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Dr Asiamah

The Institute of Public Policy and Accountability (IPPA) believes the Bank of Ghana rushed in increasing its policy rate by 100 basis points to 28%.

According to the policy think tank, though inflation remains high, above 20%, it has declined for two consecutive months, and therefore, the Monetary Policy Committee of the Bank of Ghana could have observed the inflationary trend for some time before adjusting its policy rate upwards.

“The Institute of Public Policy and Accountability though recognises the above challenges the hike in the policy rate is coming at a wrong time. Inflation is still above 20% but has witnessed two consecutive declines (marginally). Therefore, the Committee could have observed the situation for some time before adjusting the policy rate up”. 

“An increase in the policy rate is a disincentive to businesses and household consumers as they grapple with the high cost of operations and living. We therefore want the Bank of Ghana to take a second look at its inflation targeting framework. We think that the Bank cannot continue to depend solely on that policy to control money supply. Many questions have been asked regarding the efficacy of the inflation targeting framework purely because the current drivers of inflation are supply-side and not demand-side”, it said in a statement.

There was a split decision by the 5-member MPC over the policy rate, with three proposing an increase while the remaining two dissented.

IPPA said the high policy rate is a disincentive to businesses as many grapple with high borrowing and operational costs.

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It also questioned the government’s appetite for borrowing and poor fiscal management, urging the Bank of Ghana not to lend to the government and criticise the government if necessary.

“A disciplined government is important in keeping the macroeconomic fundamentals (lower interest rates, lower inflation, reduced borrowing, stable exchange rate) stronger and opening the economy for growth. Inconsistency in fiscal prudence has been our bane over the years. We, therefore, urged the Bank of Ghana not to shy away from criticising the government or pulling the plug anytime it foresees the government exhibiting poor fiscal management”.

“It [Bank of Ghana] should not succumb to executive pressure by lending to the government or printing monies. We also want the government to be disciplined by not borrowing excessively or spending beyond its means. Again, borrowed funds should be invested in productive sectors of the economy”, it added.

DISCLAIMER: The Views, Comments, Opinions, Contributions and Statements made by Readers and Contributors on this platform do not necessarily represent the views or policy of Multimedia Group Limited.

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