BoG’s raises policy rate to 24.5%

Bank of Ghana Governor, Dr. Ernest Addison

The Central Bank has once again increased its monetary policy rate by 250 basis points (2.5%) from 22% to 24.5%. 

This was announced by the Governor of Bank of Ghana, Dr. Ernest Addison at a press conference following the 108th Monetary Policy Committee (MPC) meeting in Accra.
The current increase indicates that cumulatively, the policy rate hikes by the Central Bank since November last year, comes to some 11,000 basis points (11%).

There have been various reasons for policy rate hikes over the years, and this time round the  hike was on the back of the increment in the country’s headline inflation rate which hit a record high of 33.9% in August.

Dr Ernest Addison noted the Bank’s decision to increase the policy rate is due to the fact that, inflation remains elevated and the balance of risks is on the upside. Although the forecasts are for monthly inflation to continue to slow down, the risks are on the upside, emanating largely from pass-through effects of the currency depreciation, the recent upward adjustment in utility tariffs, and rising inflation expectations.

“The Committee remains committed to re-anchoring inflation expectations and returning to a disinflation path. Under the circumstances, the MPC decided to increase the Monetary Policy Rate by 250 basis points to 24.5 percent”.

Given the hike in policy rate, interest rates on loans to the private sector is expected to increase, further making costs of production by businesses in the country more expensive.

Cedi performance

Touching on the performance of the cedi, the Dr Addison averred the outlook for the Ghana Cedi has improved, aided by the recent disbursement of the loan from Afreximbank of $750 million, the signing of the syndicated Cocoa Loan of $1.13 million, and the agreement with gold and oil companies to purchase the repatriated foreign exchange earnings of about $83.9 million.

All these inflows will help stabilise the depreciation of the cedi,” he added.

Gross International Reserves

The country’s stock of Gross International Reserves declined to US$6.6 billion, equivalent to 2.9 months of import cover for goods and services in September 2022.

This compares with the December 2021 position of US$9.7 billion, equivalent to 4.3 months of import cover.

Net International Reserves, which excludes encumbered assets and petroleum funds, is estimated at US$2.7 billion as at September 2022.

6.4% GDP deficit

For the first 9-months of the year, government recorded an elevated overall cash deficit of 6.4 percent of GDP, against the revised programmed target of 5.0 percent of GDP. Total receipts of GH¢51.49 billion (8.7 percent of GDP) over the review period, fell short of projected target of GH¢60.08 billion (10.2 percent of GDP), and represented 85.7 percent of the budgeted estimate.

Total payments of GH¢89.04 billion (15.0 percent of GDP) was almost on target, representing 99.5 percent of GH¢89.46 billion (15.1 percent of GDP). The deficit of GH¢37.56 billion, together with net foreign loan repayments of GH¢3.54 billion, created a resource gap of GH¢41.1 billion, which was financed from domestic sources and use of resources from the stabilization fund.


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