The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has raised the Monetary Policy Rate by 300 basis points from 19 percent to 22 percent.
Last change in the policy rate was in May 2022.
The latest increase follows a Monetary Policy Committee meeting held on Wednesday because of the country’s recent economic challenges.
In a statement the BoG said it considered risks to the inflation outlook before increasing the policy rate.
According to the Governor of the BoG, Dr Ernest Addison, recent developments in the foreign exchange market showed elevated demand pressures, reflecting among others, continued heightening of uncertainties in the global economy, rising inflation in many advanced economies and the resultant coordinated tightening of monetary policy stance by major central banks.
This, he added, has further tightened global financing conditions with significant implications for Emerging Markets and Developing Economies (EMDEs), especially for those with weak fundamentals.
The US Dollar has strengthened against all major currencies. From the beginning of the year to date, the pound sterling has weakened against the US dollar by 12.4 percent while the Euro has also weakened by 11.8 percent. Countries similar to Ghana (Ghana’s peers) are all experiencing sharp depreciation to date.
The Ghana Cedi, he noted, has depreciated by 25.5 percent year-to-date, reflecting the Ghana specific situation, including the challenging financing of the budget from both domestic and external sources, downgrading of sovereign credit rating, nonresidents disinvestment in local currency bonds, and loss of reserve buffers.
“The execution of the budget for the year has remained challenging. Revenue has not kept pace with projections and created financing challenges. In the absence of access to the international capital market and given the constrained domestic financing, central bank overdraft has helped to close the financing gap as reflected in the mid-year budget review. The Bank of Ghana is working with the
Ministry Of Finance To Agree On A Cap On The Overdraft
“Whilst addressing the immediate financing problems, the ongoing policy discussions with the IMF are expected to address the underlying macroeconomic challenges, restore fiscal and debt sustainability, and provide sustainable balance of payments cushion.
“Under the circumstances, and considering the risks to the inflation outlook, the Committee decided on a 300 basis points increase in the Monetary Policy Rate to 22 percent.”
By Vincent Kubi