The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) will hold its 106th Regular Meetings from Wednesday, May 18, 2022 to Friday, May 20, 2022 to review developments in the economy.
This will be the third time the MPC will meet this year. The upcoming meetings are expected to be concluded with a press conference on Monday, May 23, 2022 to announce the decision of the Committee.
The Central Bank of Ghana’s MPC meets every two months to review developments in the global and domestic economies and the committee’s decision after every meeting is based on the current economic conditions in the country and around the globe.
The BoG, after hiking the policy rate by 100 basis points to 14.5 percent due to rising inflation in its final meetings for 2021 held in November, decided to maintain the rate in its first meetings in 2022 held in January.
This was because the Committee was of the view that the dynamics associated with the November 2021 policy rate hike were yet to be fully transmitted with the expectations that the decisive implementation of the fiscal correction measures, especially the 20 percent cut in expenditure, will help moderate the upside risks to the inflation outlook.
The Committee stated that it would continue to monitor the impact of those policy measures and as needed call an extraordinary meeting to re-assess the inflation outlook over the forecast horizon and take the necessary policy decisions accordingly.
Hike in the policy rate
The Bank of Ghana was forced to take drastic measures in its second meetings held in March as economic challenges continued to mount with risks of inflation and its expectations galloping beyond experts’ predictions.
Rising food prices, upward adjustments in petroleum prices and its effect on transport fares, and exchange rate depreciation pass-through pushed up inflation to 15.7 percent at the end of February 2022, 5.7 percentage points outside the medium-term target band.
The Bank of Ghana stated that the uncertainty surrounding price developments and its impact on economic activity was weighing down business and consumer confidence. “The risks in the outlook for inflation are on the upside and include petroleum price adjustments and transportation costs, and exchange rate depreciation”, the Bank of Ghana stated.
BoG warned that fiscal policy implementation was under strain, reflecting embedded rigidities in the fiscal framework which will require extensive structural reforms to free fiscal space to restore both fiscal and debt sustainability.
Aside the domestic factors, BoG stated that on the external front, commodity prices continued to rise, driven in large parts by ongoing geopolitical tensions and increased demand pressures. Based on the risks, the Committee decided to increase the policy rate by 250 basis points to 17 percent in March 2022.
MPC in difficult situation
However, just after the committee’s decision, inflation rose sharply to 19.4 percent in March, the highest recorded since 2009. Whilst the committee’s main aim of hiking the policy rate in its previous meetings was to tame inflation, the recent upsurge in prices in the country put the committee in a difficult situation.
Following the same analogy, it is expected that the committee after its 106th meetings will raise the policy rate further, at least to ensure positive net returns for investors who hold the country’s bonds. However, it must be mindful of the repercussions on average lending rates in the country and the possible impacts on the country’s recovery from the COVID-19 pandemic.
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