Bank of Ghana increases policy rate to 17%

The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has increased the policy rate by 250 basis points to 17%.

This is the first time the Central Bank has increased the key rate since November 2021.

In his address to the media, Governor of the Central Bank, Dr. Ernest Addison, noted that all is being done to check inflation.

He attributed the upward review of the rate to the sharp rise in inflation as well as the upsurge in prices of goods and services as well as petroleum products.

“Headline inflation has risen sharply to 15.7% in February 2022, and both headline and core inflation are significantly above the upper limit of the medium-term target band.  The uncertainty surrounding price developments and its impact on economic activity is weighing down business and consumer confidence. The risks in the outlook for inflation are on the upside and include petroleum price adjustments and transportation costs, and exchange rate depreciation.”

“Under these circumstances, the committee has decided to increase the policy rate by 250 basis points to 17%. The Bank’s latest forecast still depicts an elevated inflation profile in the near term, with inflation falling within the medium-term target band within a year”, he revealed.

At this MPC meeting, the combination of tighter global financing conditions, sharp pressures on the exchange rate, and elevated inflation pose some policy challenges.

He also outlined steps being taken in the banking sector to check liquidity in the system.

“The Bank of Ghana will, effective, 1st April 2022, enforce the following measures in relation to universal banks: The cash reserve ratio has been increased to 12%, the capital conversation buffer has been reset to the pre-pandemic level of 3% making the capital adequacy ratio a total of 13% and the provisional rate for loans in the other loans exceptionally mentioned category, has been reset to the pre-pandemic level of 3%,” Dr. Addison added.

About the monetary policy rate 

The monetary policy rate, which is of keen interest to businesses, signals the rate at which the Central Bank will lend to commercial banks.

It also subsequently influences average lending rates on loans to individuals and businesses.