The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has increased the monetary policy rate by 250 basis points from 22.0 to 24.5 per cent to stem rising inflation.
“Although the forecasts are for monthly inflation to continue to slow down, the risks are on the upside, emanating largely from pass-through effects of the currency depreciation, the recent upward adjustment in utility tariffs, and rising inflation expectations,” the MPC said in a statement in Accra on Thursday, after its 108th regular meeting.
The policy rate is basically the rate at which the BoG lends to commercial banks in the country.
The statement read by the Chairman and Governor of the BoG, Dr Ernest Addison, said “Inflation remains elevated and the balance of risks is on the upside.”
Dr Addison, said global economic conditions remain challenging and global growth was slowing more than anticipated, and financing conditions have tightened some more since the August MPC Emergency Meeting, reflecting further synchronous tightening of monetary policy rates across Advanced Economies and Emerging Markets.
He said the Russia-Ukraine war which had persisted, was dragging down growth and putting additional upward pressure on prices, especially for food and energy with economic and social spillovers.
Dr Addison said against the backdrop of those headwinds, the International Monetary Fund World Economic Outlook update in July 2022 projected global growth at 3.2 percent in 2022, almost half of the 6.1 percent outturn recorded in 2021.
‘The wave of inflationary pressures spreading across several economies remain elevated and have now become broad-based across all items in the consumer basket.
“Global financing conditions remain tight as central banks in Advanced Economies raise policy rates significantly to decisively contain inflationary pressures. The Fed’s continued hike in interest rates has strengthened the US dollar, instigating a sharp rise in long term bond yields, along with a sharp decline in stock prices. The monetary policy tightening trend, has resulted in widening sovereign bond spreads across Emerging Market and Developing Economies, leading to higher currency depreciation, currency risks, and elevated debt profiles,” he said.
On the domestic front, the Governor, said price pressures had remained elevated, with inflation accelerating to 33.9 percent in August 2022, from 31.7 percent in July and 29.8 percent in June.
He said the rise in the August inflation was broad-based, driven by both food and non-food prices. Food inflation rose to 34.4 percent from 32.3 percent in July, whereas non-food inflation jumped to 33.6 percent from 31.3 percent, over the same comparative period.
The Governor indicated that the upturn in food and non-food inflation was influenced by prices of both local and imported components in the consumer price basket.
“In line with these trends, underlying inflation pressures remained heightened. The bank’s core inflation measure, which excludes energy and utility, increased further to 32.6 percent in August, from 30.2 percent in July 2022. Similarly, all the other core measures of inflation rose, reflecting the generalised increase in price levels,” the Governor, said.
He said the bank’s latest surveys showed increased inflation expectations across consumers, businesses, and the financial sectors. Notwithstanding the above trends, monthly inflation has declined for four consecutive months, reflecting a slowdown in the rate of increase in inflation.
“The MPC remains committed to re-anchoring inflation expectations and returning to a disinflation path,” Dr Addison, said.
BY KINGSLEY ASARE