Predicating the monetary policy rate for March 2022: The impact of inflation rate

The monetary policy rate since 2021 has always been higher than the inflation rate. The average difference between these two rates for the past year has been 3.5%. As the February 2021 inflation rate was 15.7%, it is anticipated that the MPC rate for the coming quarter should be set at a range of 15.8% to 19.2% by the Bank of Ghana (BOG).

This shall mean an estimated 130 to 470 basis points increase in the MPC rate for March 2022. Therefore, it is projected that 200 basis points may be added to increase the MPC rate from 14.5% for March 2022 outcome. Should BOG try to address the free fall of the Ghana Cedi against the foreign currencies, then an MPC rate must be set at 19.2%.

This may cause the interest rates to increase and make government securities attractive and prevent hoarding of foreign currency as an investment. The impact will be that the cost of funds shall be expensive and will slow down the economy for a short-term strategy.