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Policy rate to rise further

By Elorm Desewu

With the steady surge in year on year inflation, the seven member Monetary Policy Committee, (MPC) of Bank of Ghana is likely to hike the policy rate further for next couple of months, as they commence their bimonthly meeting this week.

Investors may be compelled to sell their cedi holdings, if the MPC committee decides to hold the policy rate at 22 percent.

Inflation is expected to rise further as the increase in electricity and water tariffs have taken effect from September 1, 2022 coupled with a just announced 30% increase in commercial road transport fares scheduled for September 21, will exert intense upward pressure on inflation for this month.

As inflation rises, inevitably so will interest rates and thus the cost of business financing.

The policy  rate is the at which universal banks borrow from the central bank as their last resort and also serves as a bench mark in setting the Ghana Reference Rate.

 As a result of the inflation targeting, the BoG was forced to hike its MPR by 750 basis points since May this year, to 22% currently. This has drastically raised the cost of borrowing for government and businesses alike and will unavoidably curb Ghana’s economic growth.  But the central bank sensibly points out that strong economic growth is not sustainable with inflation so high anyway.

This year, a combination of rising global energy prices, the reversal of capital inflows into Ghana by foreign bond investors and the inability to access the Eurobond market for hitherto customary annual forex funding has led to a 35% depreciation of the cedi against the United States dollar during the first eight months of this year, this fuelling import inflation.

But the BoG has banked it hopes on the US$750 million Afreximbank loan as well as the pending US$1.3 billion cocoa syndicated loan to shore up it’s reserves and also stabilize the cedi.

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