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Interest rates remain unchanged

Interest rates in the country are expected to remain steady, after the seven member Monetary Policy Committee, (MPC) decided to hold the policy rate at 14.5 percent for the next couple of months. According to the Committee chaired by the governor of the Bank of Ghana, (BoG), Ernest Addison, the dynamics associated with the November 2021 policy rate hike are yet to be fully transmitted and expects the decisive implementation of the fiscal correction measures, especially the 20 percent cut in expenditure to help moderate the upside risks to the inflation outlook, hence the need to hold the policy rate. The policy rate is the rate at which the banks borrow from the central bank and also serves as a benchmark in setting the Ghana Reference Rate. After falling to 7.5 percent in May 2021, inflation increased throughout the second half of the year, ending December 2021 at 12.6 percent. Non-food inflation went up from 9.2 percent in May 2021 to 12.5 percent in December 2021 while food inflation, over the same period rose sharply, moving from 5.4 percent in May 2021 to 12.8 percent in December 2021. The upward trajectory of inflation in the second half of 2021, reflected food supply challenges, rising crude oil prices, and some pass-through effects of exchange rate depreciation in the last quarter. At 12.6 percent for December 2021, headline inflation had moved outside the upper band of the medium-term target by 2.6 percent. 8. In line with the increases in headline inflation, underlying inflationary pressures, measured across all the Bank’s core measures of inflation, also increased over the period. The main core inflation measure, which excludes energy and utility, increased from 7.3 percent in May 2021 to 11.8 percent in December 2021. In addition, the weighted inflation expectations index, which captures inflation sentiments of consumers, businesses, and the financial sector, also picked up significantly in December 2021. On the money market, interest rates reflected mixed trends across the yield curve. The 91-day and 182-day Treasury bill rates declined to 12.49 percent and 13.19 percent respectively in December 2021, from 14.08 percent and 14.13 percent respectively, in December 2020. Similarly, the rate on the 364- day instrument decreased marginally to 16.46 percent from 16.98 percent over the same comparative period. However, rates on the 2-year and 5-year bonds increased to 19.75 percent and 21.00 percent respectively, from 18.50 percent and 19.85 percent respectively, while rates on the 3-year, 6-year, 7-year and 10-year bonds broadly declined. The rates on the 15-year and 20-year bonds, however, remained unchanged at 19.75 percent and 20.20 percent respectively, over the same comparative period. The weighted average interbank rate declined further to 12.68 percent from 13.56 percent, induced by persistent structural liquidity on the interbank market. This transmitted to the retail end of the market, and average lending rates of banks declined marginally to 20.04 percent in December 2021 from 21.20 percent recorded in the corresponding period of 2020.

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