The Governor of the Bank of Ghana, Dr. Ernest Addison, has disclosed that the Monetary Policy Committee of the Bank had increased its policy rate by 250 basis points to 27%. “…To continue to anchor inflation expectations, the Committee, therefore, decided to increase the policy rate by 250 basis points to 27.0 percent,” he said.
This comes from the 109th Monetary Policy Committee (MPC) regular meetings to review economic developments, which took place last week from Tuesday, November 22, 2022 to Friday, November 25, 2022.
The prime rate indicates the rate at which the Central Bank will lend to commercial banks and is of great relevance to businesses. As a result, it is anticipated that borrowing costs would increase further, however, this will depend on the customer’s risk profile.
It will be recalled that in 108th Monetary Policy Committee meeting in September this year, the policy Rate was increased by 250 basis points to 24.5%. This means there has been a significant increment of 2.5% within two months this year, all due to inflation.
Addressing the media at a news conference in Accra yesterday, the Governor of BoG noted that the hike was part of efforts to deal with the current inflationary pressures.
The inflation forecast, according to him, showed that in the outlook, inflation would likely peak in the first quarter of 2023, and settle at around 25 percent by the end of 2023.
This forecast is conditioned on the continued maintenance of a tight monetary policy stance and the deployment of tools to contain excess liquidity in the economy.
Dr. Addison continued that there were some risks to this forecast that would have to be monitored, including additional pressures from the proposed Value Added Tax (VAT) increase, and exchange rate pressures.
According to him, it’s been two years since the Covid-19 pandemic and war in between, and the global economy continues to face severe headwinds coupled with heightened uncertainties.
Dr. Ernest Addison again added that Global growth had slowed, with recession concerns dominating markets in the near term and as Global inflation remains high, is driven largely by food and energy prices.
Dr. Ernest Addison emphasised that the risks to the global outlook are firmly on the downside reflecting the possibility of policy mistakes amid deteriorating growth and elevated inflation, tighter financing conditions, and a stronger US dollar.
The Ghanaian economy has faced severe consequences because of the external shock reflected in high and rising inflation from exchange rate pass-through effects and complicated the policy environment.
On the transmission of monetary policy changes to inflation, he noted that “the Committee was of the view that there is evidence that the policy rate increases in the past few months have helped dampen the pace of monthly price increase.”
“Between May and August 2022, the monthly inflation number eased from a peak of 5.1 percent to 1.9 percent.
However, this was reversed in September and October on account of additional shocks from upward adjustment in ex-pump petroleum prices, utility tariff adjustments, and transportation fare increases.
In the event, inflation jumped in October 2022 to 40.4 percent and has dragged along with it, core inflation, which is almost at par with headline inflation and indicating significant underlying inflation pressures and upside risks to the inflation outlook.” he added.
