The Bank of Ghana (BoG) has increased its policy rate from 13.5 per cent to 14.5 per cent, six months after cutting the benchmark rate.
The bank said today that the increment was necessary to help contain significant risks to inflation and dampen emerging pressure on the cedi.
The central bank said in a statement that the move was a prompt policy action to re-anchor inflation expectations to safeguard the central bank’s price stability objective.
The current increment in the rate comes at a time when inflation has risen from 7.5 per cent in May to 11 per cent in October and the cedi has also come under increased pressure on concerns of fiscal and debt sustainability issues.
It also the second in more than three years – since March 2018 – when the rate was last increased. Since then, it has been on a downward spiral, reducing from 16 per cent to 14.5 per cent in March 2021 before it was reduced further to 13.5 per cent.
In the statement released in place of the usual press conference by the Monetary Policy Committee of the bank, the central bank said “the committee noted significant risks to the inflation outlook.”
The statement that was issued by the BoG Governor and Chairman of MPC, Dr Ernest Addison, said: “headline inflation has risen consistently from the low of 7.5 per cent in May 2021 to 11 per cent 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 statement said.
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Consequently, the statement said the committee noted that the elevated inflationary risks required prompt policy action to re-anchor inflation expectations to safeguard the central bank’s price stability objective.
This, it said informed the decision to raise the rate to 14.5 per cent for the last part of the year.
The seven-member committee concluded its meeting to review happenings in the economy and announce a rate decision on Friday.
A new rate is expected to announced in January after the next MPC meeting.