The Bank of Ghana and its Monetary Policy Committee has increased the policy rate by 250 basis points, reaching 17%. This was announced at the MPC press briefing on Monday. The Bank of Ghana Governor, Dr Ernest Addison described the move as necessary and is expected to control the rising inflation and check the rapid depreciation of the cedi. It is the second raise in four months after it moved to 14.5% in November 2021.
In January, the BOG had maintained the previous policy rate, acknowledging the sharp increases in energy prices, rising demand pressures, and persistent supply chain disruptions not unconnected to the ongoing crisis in Ukraine. However, that rate is no longer feasible, with headline inflation topping 15.7% in February 2022.
“Headline inflation has risen sharply to 15.7 per cent in February 2022 and both headline and core inflation are significantly above the upper limit of the medium-term target band. The uncertainty surrounding price development and its impact on economic activity is weighing down business and consumer confidence… Under these circumstances, the committee has decided to increase the policy rate by 250 basis points to 17 per cent,” the BOG Governor said.
The monetary policy rate advises the rate at which the Central Bank lends to commercial banks, subsequently influencing average lending rates on loans to individuals and businesses. Prior to now, economists have expressed concerns about Ghana’s outlook for 2022, with mounting debt and growing inflation. At the end of January, most credit rating agencies downgraded its economic outlook for the year to various categorizations of “negative”. The IMF added that the debt to GDP ratio, contrary to what the country’s leadership believes, is above the 80% mark. According to World Bank Country Director Pierre Laporte, it was important that the country’s leadership was transparent with the status of the country’s economy as it faces a difficult road ahead to restore macro sustainability.