The Bank of Ghana Monetary Policy Committee has reviewed the policy rate by 200 basis points from 17 percent to 19 percent.
Governor of the central bank, Dr. Ernest Addison speaking at a press conference on Monday May 23 explained the move is meant to stem inflation which has been surging in recent months.
The inflation rate for April this year currently stands at 23.6 percent – the highest recorded in 18 years, according to the Ghana Statistical Service.
Explaining the rationale behind the hike in the policy rate, the governor said, “The inflation numbers show that while food inflation has accounted for the increases in inflation over the past year, the recent jump in April shows that relative price increases in the non-food sector is accelerating at a fast pace, which provides information on the extent to which prices are becoming embedded.
He added that, “The Bank’s latest forecast shows a continued elevated inflation profile in the near term, with a prolonged horizon for inflation to return to the target band.”
Touching further on inflation, the Governor said expectations for consumers, businesses and the banking sector have also heightened.
“The risks to the inflation outlook are on the upside, and emanate from availability of inputs for food production, imported inflation, continued upward adjustments in ex-pump petroleum prices and transportation costs, possible increases in utility tariffs, and potential wage pressures,” he explained.
Dr Addison however pointed out that the second-round effects of these administered price adjustments would further amplify inflation pressures in the outlook.
“These considerations show that with the strong rebound in growth and the closing of the negative output gap, the balance of risk is clearly on inflation.
The MPC took the view that it needed to decisively address the current inflationary pressures to re-anchor expectations and help foster macroeconomic stability. On the basis of the above assessment, the Committee decided to raise the policy rate by 200 basis points to 19.0 percent,” he annouced.
Meanwhile, the hike in the policy rate is expected to influence the cost of credit significantly in the country for next the two and half months of the year.