Monetary Policy Rate increases to 29.5% by 150 basis points

The Monetary Committee of the Bank of Ghana (BoG) has increased its Monetary Policy Rate from 28 percent in January to 29.5 percent yesterday by 150 basis points.

This was revealed by the Governor of BoG, Dr. Ernest Addison, in a media briefing yesterday, after the Committee met the 111th time to decide on the appropriate positioning of the Bank’s Policy rate.

“To place the economy firmly on the path of stability and reinforce the pace of disinflation, it is important that the Monetary Policy stance be tuned further to re-anchor inflation expectations towards the medium-term target. Given these considerations, the MPC decided to increase the Monetary Policy Rate by 150 basis points to 29.5 percent,” he said.

Additionally, the Governor indicated that the headline inflation had declined marginally for two consecutive months, but continues to remain relatively high compared to the medium-term target of 8±2 percent.

According to him, the global financial conditions eased somewhat in early 2023, as slower growth and moderating inflation in advanced economies led markets to price in further reduction in the pace of future policy rate hikes.

As a result, the U.S. Federal Reserve, European Central Bank, and the Bank of England have all increased their respective policy rates, albeit at a slower pace, but with commitment to maintain a tight monetary policy stance until inflation is contained.

On the domestic scene, Dr. Addison added that the recent price developments indicated that the inflation surge in the economy, witnessed since December 2021, had peaked.

“The latest two readings since the January MPC meeting indicated two consecutive drops in headline inflation from the peak of 54.1 percent in December 2022 to 53.6 percent in January 2023, and to 52.8 percent in February,” the Governor stated.

The latest decline in inflation, he mentioned was attributed to lower food inflation, while non-food inflation remained broadly stable. Also, food inflation declined to 59.1 percent in February 2023 from 61.0 percent a month earlier, while non-food inflation remained flat at 47.9 percent.

He subsequently added that the latest decline in inflation was attributed to lower food inflation, while non-food inflation remained broadly stable.

On fiscal policy, Dr. Addison noted that the Committee noted that the budget statement for 2023 has set fiscal policy on a consolidation path which is consistent with key elements agreed with the IMF at the Staff Level in December 2022.

“The domestic debt exchange, new revenue measures, and structural fiscal reforms will provide significant reduction of debt service and help create fiscal space. The fiscal outlook is contingent on financing of the budget and will require the conclusion of the domestic debt exchange programme as well as securing the requisite financing assurances from bilateral donors. Indications are that these discussions are proceeding well” He said.

Based on the above, he advised Parliament to prioritise the passage of the revenue bills currently before it under the Staff Level Agreement with the IMF, the Bank of Ghana and the Ministry of Finance have finalised a Memorandum of Understanding on zero financing to the budget, which will be signed shortly.

The passage of the relevant revenue bills by Parliament, he outlined, will therefore conclude the required prior actions to advance Ghana’s programme to the IMF Executive Board.

“Developments in the banking sector broadly reflected the challenging operating environment in 2022 on account of macroeconomic conditions, and the recent implementation of the Domestic Debt Exchange Programme (DDEP) which all 23 universal banks participated in”.

He reinstated their preliminary assessment of the impact of the DDEP on the banking sector, based on December 2022 data, and indicates significant losses on account of impairment of banks’ holdings in Government of Ghana bonds.

Dr. Addison disclosed that the impact of the DDEP as currently assessed is moderated by the timely introduction of regulatory reliefs by the Bank of Ghana to support the banking sector, similar to the reliefs provided to banks at the onset of the Covid-19 pandemic.

He told the banks to publish their 2022 audited financial statements by end April 2023 following a one-month dispensation granted by the Bank of Ghana on the account of the DDEP.

Dr. Addison concluded saying the Bank will step up liquidity management operations to address excess liquidity conditions in the market and also continue to monitor developments in the banking sector and deploy other macro prudential tools to ensure financial stability.


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