Bank of Ghana Hints at Another Policy Rate Hike to Combat Inflation

The Bank of Ghana (BoG) has hinted at the possibility of another policy rate hike in a bid to curb inflation. The current inflation rate remains significantly above the medium-term target, and the central bank believes that maintaining a tight stance is necessary to bring it down. Although inflation dropped from 53.6 percent in January and 52.8 percent in February to 45 percent in March, the BoG has indicated that the rate is still high and needs to be checked.

At its last meeting in March, the Monetary Policy Committee of the BoG increased the policy rate by 150 basis points to 29.5 percent. The BoG predicts that the inflation rate will continue to decrease and could be around 29 percent by the end of the year. However, the central bank has warned that there could be surprises in the coming months, and it will use all available tools to control inflation.

The BoG has more than doubled its policy rate since November 2021, adding 16 percentage points to its key rate. The latest increase was a 250 basis point hike in March, bringing the rate to 29.5 percent. Although the BoG’s monetary policy tools have helped stabilize prices and bring down inflation, some business associations are concerned about the impact of the policy rate hikes on the cost of credit in the coming months.

The Economist Intelligence Unit (EIU) has projected a 100 basis points increase in the policy rate at the next meeting of the committee. If the forecast comes true, the policy rate will hit 31.5 percent. The EIU has predicted that inflationary and currency pressures will remain elevated until at least mid-2023, driven partly by high global commodity prices and debt-restructuring uncertainties. Stability is only expected to return once debt-restructuring terms are agreed and the IMF’s Executive Board approves the proposed $3 billion program, which is expected to happen in mid-2023.

For the most part, the BoG is committed to checking inflation and maintaining price stability, and it will use all available tools to achieve this objective. While business associations are concerned about the impact of the policy rate hikes, the EIU has projected that stability will return in 2024 as inflationary pressures ease. In a nutshell, the BoG’s focus on inflation control is expected to have a positive impact on the economy in the long run.