The Bank of Ghana’s Monetary Policy Committee (MPC) has increased the monetary policy rate by 250 basis points, from 22 percent to 24.5 percent.
According to the central financial institution, the increment for the fourth time is anticipated to reduce inflation, which has been on the rise recently as a result of the depreciation of the cedi and the increases in tariffs.
“Inflation remains elevated and the balance of risk remains on the upside. Although the forecasts are for monthly inflation to continue to slow down, the risks are on the upside, emanating largely from the pass-through effects from the cedi depreciation, upward adjustment in utility tariffs, and rising inflation expectations.”
“The Committee remains committed to re-anchoring inflation expectations and returning to a disinflation path. Under the circumstances, the MPC decided to increase the policy rate by 250 basis points to 24.5 percent,” Governor of the Bank of Ghana, Dr Ernest Addison, explained.
Speaking to the press on Thursday, October 6, 2022, Dr Addison stated that the MPC recognizes the fact that the current condition is optimal and will be interim until agreements are reached on an IMF-supported programme.
“The Committee assesses that the engagement with the IMF has been positive and early conclusion of programmes discussions will help re-anchor stability,” he added.
As of January, the policy rate stood at 14.5 percent. In March, the rate was increased to 17 per cent.
In May, Ghana’s policy rate was elevated to 19%. The rate was maintained from then until August, when the Monetary Policy Committee of the Bank of Ghana increased the rate to 22 per cent.
Data shows that whenever the policy rate was revised, inflation soared.
In January, Ghana’s inflation stood at 13.9%. The year-on-year inflation rate rose to 19.4% in March. An inflation rate of 27.6% was recorded in May by the Ghana Statistical Service (GSS).
The country’s inflation rate kept rising in subsequent months; June (29.8%), July (31.7%), and August (33.9%).
To stabilize the Ghana Cedi, one of the factors leading to a hike in inflation, government has secured and received a $750 million loan facility from Afreximbank
Dr Addison also noted that the arrangement with gold and oil companies to buy repatriated foreign exchange gains, estimated at US$83.9 million so far, will assist in stabilizing the exchange rate, as will the signature of the $1.13 billion COCOBOD syndicated loan.
The recent revision in policy rates is expected to make loans received from financial institutions more expensive.
Should that be the case, individuals interested in setting up a business or expanding their businesses, which requires large amounts of capital, will be discouraged from doing so.
Source: The Independent Ghana