Ghana raises policy rate to arrest inflation, currency depreciation

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People walk past the Bank of Ghana in Accra, Ghana. Photo by: REUTERS / Zohra Bensemra

The Bank of Ghana, the central bank, announced an increase of 250 basis points (bps) in its benchmark policy rate to 24.5 percent Thursday to reanchor inflationary expectations and arrest a free fall of the local currency.

This decision came after the previous increase in the rate by 300 bps after an emergency policy meeting in August to deal with underlying inflation pressures and currency depreciation.

The Bank of Ghana announced this decision in a press statement after its 108th Monetary Policy Committee (MPC) meeting, which took place amid negotiations with the International Monetary Fund (IMF) for an economic recovery program for Ghana.

The Bank of Ghana said that the further acceleration of inflation for the 12th straight month to 33.9 percent in August this year, driven mainly by food and non-food price increases, was indicative of elevated price levels.

“Underlying inflation pressures remained heightened. All the core measures of inflation rose, reflecting the generalized increase in price levels. The bank’s latest surveys showed increased inflation expectations across consumers, businesses, and the financial sectors,” said the statement.

On the currency front, the central bank noted that the Ghanaian cedi, the local currency, had depreciated by 37.5 percent against the U.S. dollar since January.

The statement partially attributed the depreciation of the local currency to higher crude oil product import bills on the back of rising prices.

“The effect of these factors was exacerbated by the strength of the U.S. dollar. This development has led to the depreciation of the local currency from the beginning of the year,” the Bank of Ghana added. Enditem

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