Ghana: BoG Increases Policy Rate to Check Inflation, Cedi Depreciation

The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has initiated a raft of policies to stem rising inflation and depreciation of the cedi as part of measures to shore up the economy.

The policies include increase in Monetary Policy Rate (the rate at which it lends to commercial banks) by 300 basis points to 22 per cent, hike in the primary reserve requirement of banks from 12 per cent to 15 percent.

The amount of reserves the universal banks are supposed to keep with the Central Bank will be implemented in a phased manner: 13 per cent from September 1, 2022, 14 per cent by October 1, 2022, and 15 per cent by November 1, 2022.

“To boost the supply of foreign exchange to the economy, the BoG isworking collaboratively with the mining firms, international oil companies, and their bankers to purchase all foreign exchange arising from the voluntary repatriation of export proceeds from mining, and oil and gas companies. This will strengthen the central bank’s foreign exchange auctions,” the BoG said in statement issued in Accra on Wednesday.

The MPC announced the measures after its extraordinary meeting to review recent developments in the economy and assess risks to the outlook.

Inflation had been on the upward trajectory and currently stands at 31.7 per cent and the Cedi over for the past eight months had depreciated more than 25 per cent against its international peers, amidst rising public debt which as of June 2022 had increased to GH¢293.4 billion, representing 78.3 per cent of Gross Domestic Product.

The Committee explained thatthe latest consumer price index release showed that the headline inflation accelerated further for the eleventh consecutive month to 31.7 percent in July 2022, from 29.8 percent in June 2022.

That, it said, was driven by both food and non-food price pressures.

Food inflation rose to 32.3 percent in July 2022 from 30.7 percent in June 2022 and non-food inflation increased to 31.3 percent from 29.1 percent in June 2022, contributing 55 percent to the rise in headline inflation in July 2022.

“The above developments have translated into relatively strong underlying inflationary pressures. The Bank’s core measure of inflation, defined to exclude energy and utility indices, increased to 30.2 percent in July 2022 from 28.4 percent in June,” the MPC, said.

The Committee stated that on month-on-month basis, headline inflation rose by 3.1 percent in July 2022 compared with 3.0 percent in June 2022, underpinned by increases of 3.3 percent and 3.0 percent in food and non-food inflation respectively.

“Bank of Ghana’srecent developments in the foreign exchange market showed elevated demand pressures, reflecting among others, continued heightening of uncertainties in the global economy, rising inflation in many advanced economies and the resultant coordinated tightening of monetary policy stance by major central banks,” it stated.

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