Ghana hikes interest rate 300 bps at emergency meeting
Central bank increases the benchmark rate to 22% to address the economy’s deterioration amid crippling inflation
17 August 2022 - 23:15
byCooper Inveen and Christian Akorlie
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Accra — Ghana’s central bank on Wednesday delivered its biggest rate hike since 2002, a 300 basis point (bps) increase to 22%, at an emergency meeting to address the economy’s deterioration amid crippling inflation.
The hike comes just three weeks after it kept its monetary policy rate unchanged at 19% and said it was pausing to observe the impact of a series of record-breaking hikes.
It had been due to meet again in late September, but on Monday it said an emergency meeting was needed.
Ghana’s cedi currency has continued its steep decline since the July monetary policy meeting, losing more than 6% against the dollar on Wednesday alone, according to Refinitiv Eikon data. That brought total losses for 2022 to close to 39%.
Meanwhile, consumer inflation rose further to 31.7% annually in July, its highest since late 2003, and the government’s top statistician warned it was not possible to say whether inflation had peaked.
The conditions have sparked street demonstrations against economic hardship. In July, hundreds of demonstrators in Ghana’s capital Accra protested against fuel price hikes, a tax on electronic payments and other levies.
“The committee took note of the increase in inflation in the month of July and heightened pressures in (the) foreign exchange market,” the Bank of Ghana’s monetary policy committee said in a statement.
“Considering the risks to the inflation outlook, the committee decided on a 300 basis points increase,” it said, adding that it would also raise the primary reserve requirement of banks from 12% to 15% in a phased manner.
The committee partially blamed Ghana’s current economic woes on external factors including a strong dollar and tighter global financial conditions.
It said revenue generation had been a challenge this year for the government and that without access to international capital markets, a central bank overdraft had helped to fill the gap.
Ghana is in the early stages of negotiating a support deal with the International Monetary Fund (IMF) after initially saying it would not turn to the fund for help.
The hike could help show Ghana is committed to reaching a deal with the IMF, said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered.
“While a higher policy rate alone may not be sufficient to stabilise the currency in the very near term, it will at least provide reassurance on the seriousness of Ghana’s negotiations with the IMF,” she said.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Ghana hikes interest rate 300 bps at emergency meeting
Central bank increases the benchmark rate to 22% to address the economy’s deterioration amid crippling inflation
Accra — Ghana’s central bank on Wednesday delivered its biggest rate hike since 2002, a 300 basis point (bps) increase to 22%, at an emergency meeting to address the economy’s deterioration amid crippling inflation.
The hike comes just three weeks after it kept its monetary policy rate unchanged at 19% and said it was pausing to observe the impact of a series of record-breaking hikes.
It had been due to meet again in late September, but on Monday it said an emergency meeting was needed.
Ghana’s cedi currency has continued its steep decline since the July monetary policy meeting, losing more than 6% against the dollar on Wednesday alone, according to Refinitiv Eikon data. That brought total losses for 2022 to close to 39%.
Meanwhile, consumer inflation rose further to 31.7% annually in July, its highest since late 2003, and the government’s top statistician warned it was not possible to say whether inflation had peaked.
The conditions have sparked street demonstrations against economic hardship. In July, hundreds of demonstrators in Ghana’s capital Accra protested against fuel price hikes, a tax on electronic payments and other levies.
“The committee took note of the increase in inflation in the month of July and heightened pressures in (the) foreign exchange market,” the Bank of Ghana’s monetary policy committee said in a statement.
“Considering the risks to the inflation outlook, the committee decided on a 300 basis points increase,” it said, adding that it would also raise the primary reserve requirement of banks from 12% to 15% in a phased manner.
The committee partially blamed Ghana’s current economic woes on external factors including a strong dollar and tighter global financial conditions.
It said revenue generation had been a challenge this year for the government and that without access to international capital markets, a central bank overdraft had helped to fill the gap.
Ghana is in the early stages of negotiating a support deal with the International Monetary Fund (IMF) after initially saying it would not turn to the fund for help.
The hike could help show Ghana is committed to reaching a deal with the IMF, said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered.
“While a higher policy rate alone may not be sufficient to stabilise the currency in the very near term, it will at least provide reassurance on the seriousness of Ghana’s negotiations with the IMF,” she said.
Reuters
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