The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has increased the monetary policy rate by 250 basis points from 22 per cent to 24.5 per cent.
The Committee cited heightened economic and policy uncertainties, inflationary pressures, and weakening of the Cedi against the US Dollar as among the reasons for the increment.
“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 BoG said in a statement.
The BoG said the current condition is “sub-optimal” and will be interim until agreements were reached on an IMF-supported programme.
“The Committee assesses that the engagement with IMF has been positive and early conclusion of the programme discussions will help re-anchor stability,” it said.
On the fiscal situation, the BoG said while expenditures had been broadly on target, revenue performance had been below expectations, complicating fiscal policy implementation.
It said financing of the budget so far had predominantly been from the banking sector with the central bank absorbing a larger share.
BOG noted that outlook for the Ghana Cedi had improved following the recent disbursement of the loan from Afreximbank of US$750 million, the signing of the syndicated Cocoa Loan of US$1.13 billion, and the agreement with gold and oil companies to purchase the repatriated foreign exchange earnings of about US$83.9 million.
“The Committee remains committed to re-anchoring inflation expectations and returning to a disinflation path,” the statement read.
Reacting to the announcement, Mr Courage Boti, Lead Economist at GCB Bank Capital said the decision was a bit of a surprise especially when the Month-on-month inflation margin had reduced, suggesting an ease on the slope of inflation curve.
He added that “Petroleum price, has been stable for a while even though exchange rate keeps driving the ex-pump prices in Ghana higher.”
He indicated that the main motivation for the increase could be the BOG’s own action of alluding to monetising deficit as government had lost access to the capital market both domestically and externally.
“The recent talk about debt restructuring means that the local market has not come around for a while. There were Bond maturity with uncovered auctions which the Bank must cover and of course over the years they have done that to help government. That is inflationary, and they admit it is sub optimal.
“They would have to keep mopping up the liquidity to balance the situation and curtail inflation,” he said.