Ghana’s Central Bank has adopted a hawkish stance in its 106^th regular meetings by hiking the policy rate by another 200 basis points to 19%, the second hike in 2 months after a 250 basis points increase in March.

Speaking at the 106^th MPC press briefing in Accra, the Governor of the Bank of Ghana, Dr Ernest Addison, said the move is expected to check the rapid depreciation of the cedi as well as rising food prices which were all aimed at controlling rising inflation.

“These considerations show that with the strong rebound in growth and the closing of the negative output gap, the balance of risk is clearly on inflation. The MPC took the view that it needed to decisively address the current inflationary pressures to re-anchor expectations and help foster macroeconomic stability. On the basis of the above assessment, the Committee decided to raise the policy rate by 200 basis points to 19.0 percent”.
Dr Ernest Addison

After reviewing developments within the global and domestic economies, the Central Bank highlighted that growth prospects in the domestic economy remain positive and the Bank’s high frequency indicators point to continued and increased momentum in economic activities with private sector credit showing some improvement in real terms, despite the increased price pressures.

“All these are resulting in a closure of the negative output gap. The banking sector remains robust, with sustained growth in total assets, investments and deposits. However, business and consumer confidence have dipped, reflecting the sharp depreciation of the currency and the general high inflationary environment, which has resulted in higher input costs for businesses”.
BoG

Fiscal policy implementation

Consequently, the BoG advised that a quick turnaround, with more confidence building measures to counter these conditions would provide further boost to the real economy.

On fiscal policy implementation, the Committee observed that execution of the budget for the first quarter was broadly in line with targets, although there was a minor deviation in the deficit target, stemming largely from low revenue receipts.

However, it is the expectation of the Committee that fiscal consolidation will take hold gradually and the mid-year budget review will provide further fiscal fine-tuning to ensure that the fiscal consolidation efforts stay on track.

Global dynamics and inflation outlook

On the global front, the Committee noted that despite the improvement in the trade balance due to favorable commodity prices, the external sector has weakened somewhat due to developments in the capital and financial account.

“The domestic economy does not fully benefit from higher oil and gold prices due to retention agreements in these sectors. The increased repatriation from dividend payments and profits, as well as the net portfolio reversals, have resulted in a widened balance of payments outturn and loss of reserves. The prevailing tight global financing conditions, and further policy rate hikes in Advanced Economies continue to pose risks to the external outlook”.
BoG

The Bank’s latest forecast shows a continued elevated inflation profile in the near term, with a prolonged horizon for inflation to return to the target band. Inflation expectations by consumers, businesses and the banking sector have also heightened.

The risks to the inflation outlook are on the upside, and emanate from availability of inputs for food production, imported inflation, continued upward adjustments in ex-pump petroleum prices and transportation costs, possible increases in utility tariffs, and potential wage pressures.

BoG warned that the second-round effects of these administered price adjustments would further amplify inflation pressures in the outlook. Already, national year-on-year inflation stands at 23.6 percent as of April 2022 and the central Bank expects inflation to reduce to its target bands in 2023.