The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG), has increased the policy rate by another 200 basis points to 19 percent.
This is the second time in 12 months that the Central Bank has increased the key rate by 200 basis points.
The rate, which is of keen interest to businesses, signals the rate at which the Central Bank will lend to commercial banks.
It also subsequently influences average lending rates on loans to individuals and businesses.
In his address to the media, Governor of the Central Bank, Dr. Ernest Addison, noted that risks to inflation are on the rise, hence the need to take a decisive stance to address current inflationary pressures.
“Inflation expectations by consumers, businesses, and the banking sector have heightened. The risk to the inflation outlook is on the upside and emanates from the availability of inputs for food production, imported inflation, continued upward adjustments and ex-pump petroleum prices and transportation costs, possible increases in utility tariffs, and potential wage pressures. The second-round effect of these administered price adjustments would further amplify inflation pressures on the outlook.”
“These considerations show that with the strong rebound in growth and the closing of the negative output gap, the balance of risk is clearly on inflation. The MPC took the view that it needed to decisively address the current inflationary pressures to re-anchor expectations and help foster macroeconomic stability. On the basis of the above assessment, the Committee decided to raise the policy rate by 200 basis points to 19%.”
Monetary Policy Rate must be increased to 19% to check inflation – IEA
Amidst the continuous rise in the inflation rate and calls for an intervention to stem the situation, the Institute of Economic Affairs (IEA) last week projected a 200 basis points increase in the monetary policy rate.
According to the IEA, it believes that pegging the policy rate at 19% will help narrow the gap with rising inflation and also ease to some extent the risk of foreign currency outflows.
In a paper titled, ‘How should the Bank of Ghana respond to the run-away inflation and the high cost of living in Ghana?’, Director of Research at the IEA, Dr. Kwakye asserted that, “Taking all of these factors together, it may be surmised that the PR should be raised by another 200 basis points to 19 percent.”
“This will help narrow the gap with inflation and also ease to some extent the risk of foreign currency outflows. The adjustment will also provide some assurance to the markets that the BoG is committed to addressing the resurging inflation. Anything less than this may be interpreted as a weak response, which may be concerning to the markets.”