The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has increased the Monetary Policy Rate (MPR) by one per cent from 27 per cent to 28 per cent in line with its monetary tightening stance to tame rising inflation.
The MPR is the rate at which the BoG lends to commercial banks.
Dr Ernest Addison, Governor of the BoG and the chairman of the MPC, who announced the new policy rate at a news conference in Accra yesterday, said the hike in the MPR was to control the rising inflation in the country, which currently sits at 54.1 per cent.
He said the decision of the Committee was also influenced by the global and domestic macroeconomic factors.
He said the global economic outlook remained uncertain owing to broad-based and elevated inflation, policy tightening, worsening financing conditions, and lingering spillover effects of geopolitical tensions.
“These headwinds are likely to persist through the first half of 2023, driving down confidence and weakening real household disposable incomes in advanced and emerging market economies,” he said.
He said though showing signs of cooling, inflation levels remained elevated, and central banks, especially in advanced economies, had signalled the need to maintain the tight monetary policy stance to contain inflationary pressures, albeit, at a measured pace.
On the domestic economy, Dr Addison indicated that inflation remained elevated in 2022, driven by both demand pressures and supply shocks.
“The two price readings since the last MPC meeting showed a significant jump in headline inflation to 54.1 per cent in December 2022, from 50.3 per cent in November and 40.4 per cent in October 2022,” Dr Addison said.
He said the acceleration in inflation was driven mainly by the lagged effects of the sharp currency depreciation recorded in October.
“Underlying inflationary pressures similarly remained elevated. The Bank’s core inflation measure, which excludes energy and utility, accelerated to 53.2 per cent in December 2022 from 49.7 per cent in November,” the Chairman of MPC stated.
He explained that growth conditions softened in 2022 and was projected to moderate further and remain below potential over the near-term based on the elevated inflation levels.
Dr Addison said revenue enhancement measures announced in the 2023 budget in line with the International Monetary Fund programme, such as the VAT increase of 2.5 per cent, the complete removal of benchmark values on imports, and the review of the E-Levy, would help improve the revenue outlook.
Commenting on the new policy rate, Banking Consultant, Nana Otuo Acheampong, said the hike in the policy rate was expected, saying the rate was lower than he anticipated given the current macroeconomic conditions.
“The BoG has made it known to all and sundry it is practicing inflation targeting. Inflation targeting means inflation rate must move in line with interest rate. So if the other is moving up, the other must move to check the other. So with inflation at 54.1 per cent, there is no option than an increase in MPC rate by 100 basis points, and that is moderate in my opinion,” he said.
BY KINGSLEY ASAR