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BoG likely to hike policy rate further

By Elorm Desewu

With the recent price hike in the petroleum products couple with the rise in year on year inflation, the Bank of Ghana is likely to raise the policy rate further by 150 basis points to settle at 20.5 percent from the current 19 percent.

Recent price developments indicate elevated pressures arising from the sharp increase in global energy and commodity prices, and the consequential effects on rising domestic ex-pump petroleum prices and transportation costs, food prices, as well as the pass-through effects of the recent exchange rate depreciation in the second quarter of 2022.

The Monetary Policy Committee, (MPC) will from this week begin to review the health of the economy and also announce a new policy rate for the next couple of months. But there strong indication that the BoG would hike the policy rate further in attempt to anchor inflation.

The policy rate is the rate at which universal banks borrow from the Bank of Ghana as their last resort and also serves as a benchmark in setting the Ghana Reference Rate.

Figures released by the Ghana Statistical Service, (GSS), indicate that, year on year inflation measured by the Consumer Price Index, (CPI), has inched up to 29.8 percent for the 12 months period ended June 2022, from 27.6 percent recorded in May 2022.

This represents a two percentage point increase in the inflation rate compared to the 27.6 percent recorded in May 2022.

The trends suggest that price pressures were increasingly becoming broad-based, reflected in almost all components of the consumer basket, from both domestic and imported sources.

Non-food inflation went up significantly from 25.7 percent in May to 29.1percent in June 2022, while food inflation also rose from 30.1 percent to 30.7 percent over the same comparative period.

The upward adjustments in petroleum products and transport fares with attendant second-round effects on goods and services, have pushed up inflation and inflation expectations.

The heightened uncertainty in energy prices, prolonged global supply chain holdups, the passthrough of the recent exchange rate depreciation, and upward adjustments in ex-pump petroleum prices and transportation costs, present significant upside risks and are expected to exert pressures on domestic prices in the near term.

The continued uncertainties surrounding food prices is also likely to add to the upside risks to the inflation outlook. On the downside, it is expected that monetary policy tightening, in tandem with the announced fiscal consolidation efforts, would help moderate inflationary pressures in the outlook.

The risks in the outlook for inflation emanating from both external and domestic sources, as well as triggered by both supply-side and demand-side shocks are clearly on the upside.

At the May 2022 meeting, therefore, the MPC hiked the policy rate by 200 basis points to 19 percent with the view that it needed to decisively address the current inflationary pressures to re-anchor expectations and help foster macroeconomic stability.

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