Policy Rate Increases will Have a Mixed Impact on the Economy, According to Economists.

Business

The Bank of Ghana’s policy rate hike will have a mixed impact on the Ghanaian economy, according to economist Dr. Adu Owusu Sarkodie, who spoke to ScoopGh Business.

While rising inflation and recent exchange rate pressures will be alleviated, the expected rate of economic growth will be reduced, according to him.

The Bank of Ghana’s Monetary Policy Committee raised the Policy Rate by 1% to 14.5 percent yesterday, for the first time since 2015.

Dr. Sarkodie, an economist at the University of Ghana, told Joy Business that some actors in the economy will benefit while others will suffer.

“The recent increase in inflation of 11%, which is higher than the band of 10%, the increase in fiscal deficit of 9.5 percent, which is higher than the threshold of 5%, the increase in energy prices, the uncertainties surrounding food prices, and investment behavior have caused the Bank of Ghana to raise the policy rate by 1%, from 13.5 to 14.5%.”

Obviously, this policy will have its own set of consequences; there will be both positive and negative effects, as some actors in the economy will benefit while others will suffer.

Concerning the drawbacks, Dr. Sarkodie stated that “a higher policy rate will lead to an increase in interest rates by increasing the cost of borrowing, which will reduce investments and then cause the overall GDP to be negative.” You can also expect consumers to reduce their consumption and shift their spending from consumption to investment.”

He also anticipates a slowing in the rate of economic growth.

Concerning the benefits, he stated that “the effects of that are to reduce the depreciation of the cedi, increase exports, and then increase investments.” There is also the overall effect of lower inflation.