Ghana’s MPC leaves key rate unchanged at 14.5%

Ghana's Monetary Policy Committee (MPC) recently decided to maintain its benchmark interest rate at 14.5 percent during its ninth policy meeting. The committee acknowledged that while the country's macroeconomic conditions have shown signs of improvement, important risks still linger, including the budget deficit and the uncertainties surrounding the COVID-19 pandemic. Derek Mensa, a portfolio manager at ICASET Managers, provided insights on the outcomes of the meeting, shedding light on crucial issues like economic activity, budget deficits, and the upcoming presidential elections. Mensa highlighted the positive growth in economic activity over the last three months, attributed to the easing of pandemic-related restrictions. However, he expressed concerns about the widening budget deficit and the implications for Ghana's macro economy in 2021. The deficit, arising from high expenditures compared to revenue, poses a risk to debt sustainability and could necessitate increased borrowing. Analysts fear that such a scenario could strain the country's public debt stock and lead to challenges over the medium term. Despite the positive economic indicators, uncertainties loom large over how the government plans to address the deficit issue. With Ghana heading into elections in a few weeks, the economic direction post-election remains uncertain. Mensa noted that historical trends suggest the potential for tax rate reductions, especially given the fragile economic recovery. Speculations revolve around potential currency management strategies and expectations of improved revenues in light of positive sentiments regarding COVID-19 vaccines. Looking ahead to 2021, analysts anticipate a reduction in COVID-related expenditures and a slight revenue pickup. However, the impending elections add a layer of uncertainty to economic forecasts, with the focus shifting to how different political parties plan to tackle corruption, manage the pandemic, and steer the economy towards recovery. Voters are closely watching for policy proposals and strategies that address these critical issues. Of particular concern is the potential impact of the deficit on the Ghanaian currency, with analysts keeping a keen eye on the reserve position and the likelihood of the Ghana Cedi facing pressure in the first quarter of 2021. Issues of corruption and economic recovery are at the forefront of voter concerns, as citizens evaluate the promises and plans put forth by political parties in the lead-up to the elections on December 7th. In light of the current economic challenges and the impending elections, Ghana faces a pivotal moment in its economic trajectory. The decisions made in the coming months will play a crucial role in shaping the country's recovery and fiscal stability amid a challenging global landscape.