The Bank of Ghana (BoG) has indicated that it may hike again the monetary policy rate to help bring inflation down faster.

The Central Bank argued that “the current inflation rate remains significantly above the medium-term target, warranting that tight stance is maintained going forward”. 

Inflation dropped to 45% in March 2023, from 53.6% in February 2023.

The Monetary Policy Committee of the BoG, at its last meeting in March 2023, increased the policy rate by 150 basis points to 29.5%

Inflation projection

The BoG had earlier told Joy Business it is forecasting inflation to trend down further to about 29% by the end of year .

The Governor of the BoG, Dr. Ernest Addison in an interaction  with  Joy Business’ George Wiafe in Washington DC during the 2023 IMF/ World Bank Spring Meetings said barring any negative set back the predictions could happen.

 “We should expect more surprises when it comes to inflation rate in the coming months”, he said.

The BoG has more than doubled the policy rate since November 2021, adding 16 percentage points to its key rate.

The most recent increase was a 250 basis points hike in March 2023, to 29.5%.

BoG’s role

The BoG has stated that its monetary policy tools has helped stabilized prices by bring inflation down in 2023.

“The Bank has been very decisive in responding to the rising inflation rate over the last year, by raising policy rate in response to the inflation pressures”, Dr. Addison said. 

Dr. Addison said the Central Bank will use all the tools available to check inflation.

“This include upward adjustment in the cash reserve ratio to address the liquidity in the system,” he said.

Concerns of businesses

Some business associations and groups are worried about the latest stance of the Bank of Ghana in terms of the Policy Rate hikes and how that could impact negatively on the cost of the credit in the coming months.

They are worried about how the commercial banks might respond to this move by the Bank of Ghana.

 EIU’s projection

London Based, Economist Intelligence Unit (EIU) has projected a 100 basis points increase in the policy rate at the next meeting of the committee.

This should result in the policy rate hitting 31.5 percent if the forecast comes true.

The Monetary Policy Committee at its last meeting ending March 2023, increased the policy rate by 150 basis points to 29.5 percent.

The EIU said inflationary and currency pressures will remain elevated until at least mid-2023

This, it said will be driven partly by the high global commodity prices and debt-restructuring uncertainties.

It added that stability will only return once debt-restructuring terms are agreed and the IMF’s Executive Board approves the proposed $3 billion programme.

“We currently expect this in mid-2023, although downside risk loom large,” the EIU report said.

“We expect the policy-rate to reach 31.5% by end-2023, before being stable in 2024 as inflationary pressures eases”, the report added.