IN a bid to control the surging inflation, Ghana’s central bank’s Monetary Policy Committee (MPC) made a significant move by raising the benchmark lending rate to 30 percent. The decision was announced by Ernest Addison, the governor of the bank, during a press briefing following the 113th MPC meetin
g, reports Koku Devitor.
Addison explained the rationale behind the 50-basis-point increase, stating that inflation risks had been on the rise, accompanied by elevated cor
e inflation driven by second-round effects of food prices. ‘Inflation has persistently hovered around 42 percent throughout the second quarter of 2023, even though central bank financing for government budget was eliminated in the first six months of the year in line with the agreement in the International Monetary Fund (IMF) programme,’ Addison stated.
He emphasised the need for decisive tightening from both the fiscal and monetary sides to firmly anchor inflation expectations on a declining path. Despite expectations of a decline in inflation in the near-term, baseline forecasts indicated a slightly higher elevated profile in the coming year, which, if left unattended, could lead to underlying inflationary pressures.
Addison further explained that the rate hike aimed to mitigate inflation risks later in the year, especially with the possibility of increased foreign financing, which could lead to higher spending. ‘It is important that policy responds appropriately and decisively to prevent these risks from becoming embedded and consequently derailing the disinflation process,’ he said.
The governor pledged that the committee would closely monitor incoming inflation data in the upcoming months and take necessary actions if inflation persists.
Ghana’s inflation had been on a declining trend for four consecutive months starting from January, after reaching a record high of 54.1 percent in December. The West African nation, known for its cocoa, gold, and crude oil exports, has been
facing significant economic challenges. These challenges are further exacerbated by ballooning public debt, a record rise in inflation, foreign exchange volatility, and higher cost of living.
Despite the hurdles, the Ghanaian economy showed some resilience, expanding by 4.2 percent in the first quar
ter of 2023, compared to 3 percent in the same period the previous year. However, inflation climbed again to 42.5 percent in June, following a previous increase to 42.2 percent the month before. The recent rate hike by the central bank reflects the authorities’ commitment to stabilising the economy and keeping inflation in check.
