inflation risks, others force BoG to increase policy rate to 14.5%
The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has increased the policy rate by 100 basis points from 13.5% to 14.5%.
The central bank cited risks including inflation, exchange rate as well as fiscal and debt sustainability challenges for the increase.
“Headline inflation has risen consistently from the low of 7.5% in May 2021 to 11.0% in October driven by both food and non-food price increases. In addition, all the Bank’s core measures of inflation have increased, indicating broad-based underlying inflation pressures, with the potential of de-anchoring inflation expectations. Currently, headline inflation is above the upper limit of the medium-term target band and the Committee noted significant risks to the inflation outlook”.
“These risks include rising global inflation, high energy prices, uncertainties surrounding food prices and investor behaviour. The Committee further noted that these elevated inflationary risks, require prompt policy action to re-anchor inflation expectations to safeguard the central bank’s price stability objective. Given these considerations, the Committee, therefore, decided to raise the policy rate by 100 basis points to 14.5 percent”, a report by the MPC sdaid.
According to the report, Ghana’s sovereign bond spreads widened markedly over the period as investor sentiments shifted based on fiscal and debt sustainability concerns, prompting some sell-offs by investors with spillovers on the domestic foreign exchange market.
The situation triggered some currency pressures in the past two months as demand for the U.S. dollar increased.
“However, the adequate reserve levels provided some buffers and supported a much slower depreciation pace compared with pre-pandemic levels. In the outlook, the Committee is of the view that the strong reserve buffer level should provide some assurance to the market and help abate investor concerns, as the country’s external payment position remains strong”, the report added.