Dr. Ernest Addison
BANK OF Ghana (BoG) has raised the policy rate to 19 per cent in an attempt to bring the fast-rising prices and depreciation of the cedi under control.
This is for the second time this year.
The central bank said it was lifting the benchmark rate of 17% set in March by 200 basis points to 19% amid increases in oil and food prices.
The moves come as the economy faces new uncertainty caused by the Ukraine war and the coronavirus, with widespread global repercussions.
The rise in the policy rate means that it will be more expensive for households, businesses and governments to borrow.
Speaking at the 106th Monetary Policy Committee (MPC) press briefing in Accra, the Governor of BoG, Dr. Ernest Addison, said they hope that the increase would cool demand for goods and services, helping to ease price inflation in the country, which hit a new one-year high of 23.6% last month from 8.5%.
Interestingly, the inflation for imported goods was 17.3% in March, 24.7% in April, while the inflation for locally produced items was 20.0% in March and 23.0% in April, which is the first time in 29 months that inflation for imported items exceeded domestic inflation, reflecting the current global inflationary pressures.
Dr. Addison explained that expectations by consumers, businesses and the banking sector had heightened.
For him, the risk to 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,” he posited.
The central bank governor noted, “The committee 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%.”
According to him, the heightened uncertainties surrounding the inflation dynamics have weighed heavily on the domestic environment and significantly depressed business and consumer sentiments.
The BoG governor indicated that the rising inflation is an issue, which in “a sense is baffling to all of us. A year ago, inflation in Ghana was near single digit, particularly, we were at 7.5%, and then we found ourselves a year later in high double digits.”
“It’s a very complicated environment. As you yourself are aware, we have come out of COVID-19. But Ghana, fortunately, was able to weather the impact of COVID well, without recording high interest rates,” he asserted.