The Bank of Ghana has increased its policy rate by 150 basis points to 29.5% to help check the high inflation and any downside risks to the economy.
This means the cost of credit will continue to remain high, affecting household spending and private sector growth.
Average lending rates shot up marginally to 36.64% in February 2023, from 35.58% recorded in December 2022. This is equivalent to 3.02% interest rate on loans per month.
Announcing the development few minutes ago, Governor of the Bank of Ghana, Dr. Ernest Addison, said the ease in price pressures abroad will likely impact positively on Ghana’s domestic inflation profile going forward.
“Headline inflation has declined marginally for two consecutive months, but continues to remain relatively high compared to the medium-term target of 8±2%. To place the economy firmly on the path of stability and reinforce the pace of disinflation, it is important that the monetary policy stance be tuned further to re[1]anchor inflation expectations towards the medium-term target. Given these considerations, the MPC decided to increase the Monetary Policy Rate by 150 basis points to 29.5%”, he said.
He said the recent Domestic Debt Exchange Programme (DDEP) has impacted negatively on banks, hence the need for the Central Bank to make necessary adjustments to its regulatory requirements to support the banks.
“Whiles the domestic economy still faces relatively tight global financing conditions and heightened uncertainty about the global economic outlook, the effects of these could be amplified inherent vulnerabilities including structural and excess liquidity following the DDEP and the widening negative outlook gap”.
He, however, said the banks remain strong, sound and stable based on its recent stress test.
He added that the Monetary Policy Committee of the Bank of Ghana will continue to monitor developments within the banking industry to reduce the downside risks to the economy.
2023 Budget set fiscal policy on consolidation
He explained that on fiscal policy, the Committee noted that the budget statement for 2023 has set fiscal policy on a consolidation path which is consistent with key elements agreed with the IMF at the Staff Level in December 2022.
“The domestic debt exchange, new revenue measures, and structural fiscal reforms will provide significant reduction of debt service and help create fiscal space”.
Dr. Addison added that the fiscal outlook is contingent on financing of the budget and will require the conclusion of the domestic debt exchange programme as well as securing the requisite financing assurances from bilateral donors.
“Indications are that these discussions are proceeding well. Based on the above, it is imperative that Parliament prioritizes the passage of the revenue bills currently before it. Under the Staff Level Agreement with the IMF, the Bank of Ghana and the Ministry of Finance have finalised a Memorandum of Understanding on zero financing to the budget, which will be signed shortly”, he said.
He added that the passage of the relevant revenue bills by Parliament will conclude the required prior actions to advance Ghana’s programme to the IMF Executive Board.
This, he said will be critical in resetting the economy on the path of recovery, including putting it firmly on a disinflation path and sustained growth.
