News Guide Africa

Tag: Ghana Inflation

  • Ghana’s inflationary trend to improve as global price eases

    Ghana’s inflationary trend to improve as global price eases

    Adnan Adams Mohammed

     

    As global prices of food and energy ease, Ghanaians are likely to witness a positive improvement in its inflationary trends.

     

    Ease in prices could have a trickle-down effect on Ghana’s economy, the Bank of Ghana Governor has said.

     

    In spite of the emerging risks to global financial stability, central banks in major advanced economies have demonstrated a strong commitment to containing underlying inflationary pressures with sustained policy rate hikes, albeit, at lower rates than earlier anticipated”.

     

    “Global inflation is easing as food and energy prices moderate due to weakened global demand, improved supply of goods, and continued monetary policy tightening”, Governor Dr Ernest Addison said at its recent Monetary Policy Committee meeting held in Accra last week.

     

    “Global financing conditions have eased slightly, reflecting changing market expectations regarding the pace of policy tightening”.

     

    The US dollar index initially firmed up amid rising demand for safe-haven currencies following the collapse of Silicon Valley Bank and Signature Bank, but so far, swift regulatory action and assurances to contain contagion risks, combined with decisions to boost dollar liquidity somewhat eased market concerns about a wider banking and financial crisis.

     

    “The committee was of the view that the ease in price pressures abroad would likely impact positively on Ghana’s domestic inflation profile”, he reported.

     

    On the other hand, he said “the committee noted that the domestic economy still faces relatively tight global financing conditions, emerging risks in the global financial system, and heightened uncertainty about the global economic outlook”.

     

    “The effects of these on the domestic economy could be amplified by inherent vulnerabilities, including structural excess liquidity following the DDEP, and the widening negative output gap”, he added.

     

     

  • Inflation returns to target band in 2025

    The Bank of Ghana is very optimistic that headline inflation would return to its medium term target band of 8±2 percent during the second half of 2025.

    According to the BoG, the latest forecast suggests that, inflation is likely to peak in the first quarter of 2023 and gradually ease thereafter. However, headline inflation is projected to remain above the upper until the second half of 2025.

    Headline inflation jumped in the fourth quarter of 2022, driven by both demand and supply shocks.

    Headline inflation has moved further up to 54.1 percent in December 2022, from 50.3 percent recorded in November 2022 but declined slightly to 53.6 percent t the end of January 2023.

    The acceleration was largely explained by the lagged effects of the sharp currency depreciation amid food price pressures. Food and nonfood inflation went up significantly.

    The continuous monetary policy tightening and the relative stability in the exchange rate in December 2022 led to some moderation in the pace of monthly price acceleration.

    However, underlying inflationary pressures remain broadened and could be reinforced by additional shocks in the near-term with the announcement of new revenue measures in the 2023 Budget, additional exchange rate pressures, and upward adjustments in utilities and ex-pump prices.

  • Revise the current modalities for the Debt Exchange Program – Economist advise gov’t

    Revise the current modalities for the Debt Exchange Program – Economist advise gov’t

    Adnan Adams Mohammed

    An economist has called on the manager of the economy to revise the modalities of the entire exercise of Domestic Debt Exchange Program (DDEP).

    The Honorary Fellow at Solidare Ghana believes that, since the bank and non-bank sector stability plays a major role in a non-market economy like Ghana, the government is advised to stress-test all these sectors before any debt exchange program.

    The economist explained that, the stress test will provide information on how to design the needed support for the sector. Indicating further that, the financial stability support fund provided in the first and the revised DDEP is not enough, some of the institutions may need recapitalization, liquidity support, and in large regulatory measures.

    “The government’s posture in the Domestic Debt Exchange Program (DDEP) exercise seems not to be serious”, Professor Lord Mensah, a lecturer at the University of Ghana Business School indicated in his expectations for 2023. “The entire exercise can pose a unique challenge, dragging the IMF Board approval and external debt restructuring into the last quarter of 2023 to the first quarter of 2024.”

    Prof Mensah stressed that, “There seems to be no appreciation of the consequence of the entire DDEP on the domestic financial sector.”

    Consequently, he provided education on the effect between the DDEP and the financial sector. “The government should note that Banks and the Non-Bank (including pensions, rural banks, and insurance companies) sectors hold more than 84% of the domestic debt, and as a result, careless execution of the DDEP may spread the country’s debt distress to other parts of the economy, with likely effects on the financial stability and economic activity.

    “The structure of the DDEP will play a major role in achieving the necessary fiscal space whiles minimizing the risk to the domestic financial system and the broader economy. The government must sacrifice and cast its net wide to ensure borrower-creditor participation in the DDEP by lowering the relief it is seeking from the creditors.”

    Meanwhile, moving from the above analysis on the DDEP, the economist expects the “macroeconomic indicators like the exchange rate (Cedis to the Dollar) and inflation to see some stability compared to last year, due to the fall in global oil prices and other policies.

    “The fall in global oil prices, the suspension of external debt payments by the government, and the possible IMF extended credit facility will have the potential to control the exchange rate.

    “The control of the exchange rate will build up into a reduction in inflation since the greater part of the Ghanaian inflation is imported.”

  • Inflation expectations high- BoG

    Inflation expectations high- BoG

    By Elorm Desewu

    The Bank of Ghana, (BoG) has expressed some potential risks to inflation due to the increase in the Value Added Tax (VAT) by 2.5 percent by the government.

    The inflation forecast shows that in the outlook, inflation will likely peak in the first quarter of 2023 and settle at around 25 percent by the end of 2023.

    According to the governor of the BoG, Dr Ernest Addison, “there are however some risks to this forecast that would have to be monitored, including additional pressures from the proposed VAT increase, and exchange rate pressures. Continued vigilance to the evolution of these potential price pressures in the outlook will be key”.

    This forecast is conditioned on the continued maintenance of tight monetary policy stance and the deployment of tools to contain excess liquidity in the economy.

    Inflation has remained elevated, with strong underlying inflationary pressures. Price developments suggest that the upturn of headline inflation in October 2022 was driven largely by food price pressures and to some extent additional pressures from the currency depreciation.

    The headline inflation has increased further to 40.4 percent in October 2022, from 37.5 percent in September. Food inflation increased by 4.9 percentage points to 43.7 percent in October 2022 from 38.8 percent in September, while non-food inflation increased by 1.3 percentage points to 37.8 percent from 36.5 percent. Underlying inflationary pressures have also heightened further.

    The Bank’s measure of core inflation, defined to exclude energy and utility prices, increased from 36.2 percent in September 2022 to 39.7 percent in October 2022, an indication of broad-based inflationary pressures. At the same time, consumer, business, and financial sector inflation expectations went up.

    Interest rates on the money markets trended upwards across the spectrum of the yield curve, in line with the tightening of monetary policy stance. At the short-end of the market, the 91-day and 182-day Treasury bill rates increased to 31.53 percent and 32.61 percent respectively, in October 2022, from 12.46 percent and 13.16 percent respectively, in the same period of 2021. Similarly, the rate on the 364-day bill increased to 32.32 percent from 16.24 percent over the review period.

    On the secondary market, rates on all bonds, from 2-year through to 20-years, almost doubled over the one-year review period.

    The interbank weighted average rate increased to 23.98 percent in October 2022 from 12.66 percent in October 2021, consistent with the increases in the policy rate and the incremental hikes in the Cash Reserve Ratio from 12 percent in August 2022 to 14 percent in October. In tandem, the average lending rates of banks rose to 31.40 percent in October 2022 from 20.34 percent in the same period of 2021.

  • Govt’s seven point agenda to restore stability

    Govt’s seven point agenda to restore stability

    The government has anchored the 2023 budget on a seven-point agenda aimed at restoring macroeconomic stability and accelerating economic transformation as articulated in the Post-COVID-19 Programme for Economic Growth (PC-PEG).

    According to the Finance Minister Ken Ofori Atta, these comprise an agenda to: aggressively mobilize domestic revenue; streamline and rationalise expenditures; boost local productive capacity; promote and diversify exports; protect the poor and vulnerable; expand digital and climate-responsive physical infrastructure; and implement structural and public sector reforms.

    “To achieve these, there are three critical imperatives: successfully negotiating a strong IMF programme; coordinating an equitable debt operation programme; and attracting significant green investments”, he said.

     This, according to he Minister will enable the government to generate substantial revenue, create needed fiscal space for the provision of essential public services and facilitate the implementation of the PC-PEG programme to revitalise and transform the economy.

    The government plans to undertake the following actions, initiatives, and interventions under the seven-point agenda; increase the VAT rate by 2.5 percent to directly support our roads and digitalization agenda; ast-track the implementation of the Unified Property Rate Platform programme in 2023; and review the E-Levy Act and more specifically, reduce the headline rate from 1.5% to one percent (1%) of the transaction value as well as the removal of the daily threshold.

    Other are, cut the imports of public sector institutions that rely on imports either for inputs or consumption by 50% and will work with the Ghana Audit Service and the Internal Audit Agency to ensure compliance; support the aggressive production of strategic substitutes, including the list disclosed at the President’s last address to the nation; support large-scale agriculture and agribusinesses interventions through the Development Bank Ghana and ADB Bank; introduce policies for the protection and incubation newly formed domestic industries to allow them to make the goods produced here competitive for local consumption and also for exports.

    The government will expand the productive capacity in the real sector of the economy and actively encourage the consumption of locally produced rice, poultry, vegetable oil and fruit juices, ceramic tiles among others; to pursue efficiency in Government expenditures, we will among others: implement the Government directives on expenditure measures; integrate public procurement approval processes with GIFMIS to ensure that projects approved are aligned with budget allocation; review key government programmes to reflect relevance, promote efficiency, and ensure value for money; and review the efficiency of Statutory Funds

    It will also undertake major structural reforms in the Public Sector by reviewing the operations of 36 State-owned Enterprises, 8 Special Purpose Vehicles, 90 Joint Venture Companies, 38 Regulatory institutions, 68 Statutory Bodies and 6 Subvented Agencies; enforce compliance with a legal and regulatory framework on foreign exchange; initiate measures to overhaul the tax structures in the extractive industry; expand the gold purchase programme by the Bank of Ghana to support FX Reserve accumulation, and promote an LBMA-certified gold refinery in Ghana and promote local currency stability.

  • Inflation rises to 40.4%

    Inflation rises to 40.4%

    Year on year inflation measured by the Consumer Price Index, (CPI) has increased to 40.4 percent for the 12 months period end October, 2022 from 37.2 percent recorded at the of September, 2022, after months of rapid currency depreciation.

    Ghana’s cedi had one of its worst months on record in October and has lost around half its value against the dollar in 2022. It has been Africa’s worst performing currency this year, according to the World Bank.

    “It’s possible that the impact of the exchange rate changes will linger on for some number of months,” said government statistician Samuel Kobina Annim, adding the duration of the impact would depend on how effective polices are in the next two to three months at mitigating the effects.

    October inflation was highest in the category of housing, water, electricity and gas, with prices up 69.6%. Furniture, household equipment and maintenance came second, at 55.7%, and transport, including fuel, was third at 46.3%.

    Food inflation rose to 43.7%, from 37.8% last month, driven higher by items such as water, milk, eggs and sugar, according to the statistics agency.

    Ghana’s dollar-denominated sovereign bonds fell, on a day when many emerging market assets were gaining on hopes that the U.S. Federal Reserve would pare back its interest rate hikes. Its longest-dated 2061 maturity was down the most, by 0.742 cents to 32.675 cents on the dollar.

    The central bank has hiked its main lending rate by 10 percentage points since the start of the year in attempt to hold back inflation and slow the cedi’s depreciation.

    The food inflation recorded the highest rate among all the components as against non-food inflation, according to figures from the Ghana Statistical Service. The increase by food inflation indicates a jump of more than 3% from the previous rate of 37.2%.

    The other four divisions are Housing, Water, Electricity, Gas and Other Fuels (69.6%); Furnishings, Household Equipment ad Routine Household Maintenance (55.7%); Transport (46.3%) and Personal Care, Social Protection and Miscellaneous Goods and Services (45.5%).

    Food inflation was 43.7% in the month of October 2022, compared with 37.8% in September 2022. It has bigger weight than the above divisions.

    Eight subclasses in the food inflation group recorded higher rates. This was distantly led by Water (64.3%) followed by Milk, Other Dairy Products and Eggs (58.9%) and Sugar, Confectionery and desserts (54.6%).

    Also in the case of month-on-month food inflation nine subclasses record rates higher than the national average. Milk and Other Dairy Products and Eggs recorded the highest, 7.8%.

    Non-food Inflation was however 37.8% in October 2022, from 36.8% recorded in September 2022.

    Addressing the media, Government Statistician,  Professor Samuel Kobina Annim explained that all items in the component for calculating the rate of inflation recorded an increase.

    Inflation for locally produced items was 39.1%, whilst inflation for imported items was 43.7%.

    Eastern Region recorded the highest inflation of 51.1% in Ghana in October 2022.

    It was followed by Greater Accra region (49.1%) and the Savannah region (47.6%).

    The region with the least inflation was Volta (25.8%).

    The Central Region (57.9%) recorded the highest food inflation while Greater Accra recorded the highest non-food inflation (53.2%).

  • Cedi depreciation to hike inflation further

    Cedi depreciation to hike inflation further

    Adnan Adams Mohammed

    The Government Statistician has indicated that the effect of the depreciation of the local currency,  the cedi against major trading currencies (especially, the U.S Dollar) would continue to affect the rate of inflation in the country.

    “The policy decision to be taken in the next few months will determine if the current volatilities in the exchange rate will continue to influence inflation or not”, Professor Samuel Kobina Annim said.

    Year-on-Year October 2022 inflation surged to 40.4% with imported inflation recording very high rate than locally produced items. Inflation for locally produced items was 39.1%, whilst inflation for imported items was 43.7% in the month of October 2022.

    This shows the sharp relationship the Cedi depreciation has on the untamed imported inflation. However, the Finance Minister has reiterated government’s commitment to stabilising the Ghana cedi by the end of the year. According to him, government together with the Bank of Ghana have adopted measures including dealing with speculation which he described as one of the major causes of the depreciation of the cedi in recent times.

    “As the Minister of Finance, no one needs to tell me the ravages of the cedi depreciation which has become an albatross on the neck of our local industries and the high cost of living for all citizens”, Ken Ofori-Atta admitted at an Association of Ghana Industries (AGI) forum in Accra, last week.

    Professor Annim, therefore, believes a drastic policy decision can make a huge impact on the rate of inflation.

    “In terms of how the exchange rate is impacting on this [inflation], one has to look at two things, thus the past through effects and how many items experience the effects as well as the timing of the effects”.

    “So it is possible that the impact of the exchange rate will linger on for a number of months. But the determination of the months will depend on the kind of policy to be introduced in the next two to three months”, he pointed out.

    He added that “so whether we peak or not will depend on what is happening and the items that are going to be affected and the price increases”.

    Meanwhile, Mr. Ofori-Atta after giving assurance to captains of industry, charged industry to increase their productive capacity to stimulate job creation, adding that “we cannot continue to be a nation of importers.”

    He cited an example such as the country imports about GH¢4 billion worth of fish, GH¢1.9 billion worth of chicken and GH¢487 million worth of meat in 2022.

  • Policy rate to rise further

    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. togel toto

    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.

  • Policy Rate Hike: experts differ on effectiveness to control inflation

    Policy Rate Hike: experts differ on effectiveness to control inflation

    Adnan Adams Mohammed

    The Bank of Ghana last week increased the monetary policy rate by a further 3 percentage to 22 percent from 19 percent purposefully to control the frog-leaping consumer inflation.

    Financial experts have expressed verified opinion in their response to a question on whether the policy rate could be an effective measure to tame the galloping inflation which currently is around 31.7%.

    A Finance Lecturer and Associate Professor with Andrews University in Michigan, USA, in reacting to the increase in the Central Bank’s policy rate rate said, the monetary authority should have put a cap on the amount government borrows, so far as it has put a limit on the primary reserves of banks, although he welcomed the policy rate hike.

    “So far as the Central Bank has put a limit or has increased the primary reserves for banks, it must also put a cap on the amount [borrowings] government withdraws from its account which is called debt monetization or printing of money”, Dr Williams Peprah suggested.

    According to him, the printing of money is one of the major impacts on increasing inflation, “so, I was hoping that the Central Bank will address the issue”.

    He however said “the Bank of Ghana’s monetary policy decision of increasing the rate to 22% is a good thing that we need now in the country. Because, we’ve noticed the disparities between the monetary policy rate, inflation rate, and treasury bill rate.”

    “At the moment, the Treasury bill rate is hovering around 27% and the difference between that one and the monetary policy rate is worrisome. So moving it up to 22% is something that will be able to address the issue”.

    On the Central Bank’s decision to boost the supply of foreign exchange into the economy and help stabilise the cedi, Dr. Peprah said the Central Bank should not limit it to only three industries (mining, oil and banking), but also to the other sectors of the economy.

    “The Central Bank should not limit its discussions to only these three industries, but also to the service sector by focusing on telecommunications, because the firms hold some foreign exchange exposure.

    Indeed, the cost of borrowing already will go up as I have mentioned because banks are now pegging their cost of funds to the Treasury bill rate and not the monetary policy rate”.

    Contrary, a Partner at Deloitte Ghana, Yaw Lartey has expressed his worries about the increased policy rate, saying it will not address the rising inflation rate, but rather shoot up cost of borrowing.

    According to him, though the monetary policy rate historically has helped to manage inflation, the current economic situation proves otherwise.

    “So, we know that historically, the monetary policy rate has been used to manage inflation, particularly in an attempt to mop up excess liquidity from the market where necessary. However, in this particular situation, we do not believe that the increase in monetary policy rate will help manage inflation. And this is so because in the last four months, the Ghana Statistical Service has released inflation rate which points out to the fact that imported inflation is the key driver”.

    “So imported inflation has outpaced domestic inflation. When you have imported inflation, it is very difficult to use monetary policy to manage it because a lot of it is driven by factors that are beyond the control of the market forces, particularly within the country”, he added.

    Mr. Lartey advised the government to address the rate of depreciation of the cedi if the country wants to fight inflation.

    “So, what government should focus on is to manage the rate of depreciation if it really want to deal with imported inflation. We should ensure that the cedi is stabilised or strengthened against major trading currencies because a lot of the imported inflation is driven by the fact that they’re importing some commodities; and when the local currency depreciates, we don’t have to spend more to import those commodities”.

    He argued that addressing the cedi’s depreciation will help protect people’s investments, adding that the current rate of return on the money market is less than 28%, lower than the inflation rate of over 31%.

    “And the benefits, we are likely to get is that people’s investments have been protected. So, as we speak we initially projected an inflation rate of 8% inflation. Now we have revised it to 28%. What that means is that any return on investment is less than 28% will be a negative return.”

    “Currently, Treasury bills are trading at about 27%. This year’s inflation is about 31%. And anybody who’s investing at 26% whether any of Ghana’s security is getting a negative return on investment,” he added.

    Mr. Lartey however urged the Bank of Ghana to make more funds available for financial institutions to help mitigate the cost of borrowing, and consequently reduce the cost of doing business.

    Apparently, the Head of Economics Department at the University of Ghana, William Baah-Boateng has commended the Bank of Ghana (BoG) for its swift approach to increase the policy rate by 300 basis points to 22%, after an Emergency Monetary Policy Committee meeting.

    Dr. Baah-Boateng in an interview indicated that had the BoG not intervened, the country’s inflation rate would have been 100%.

    “In economics, there is something we call counterfactual so if the problem is coming and they don’t even step in at all, perhaps we would have been in the 100’s,” he said.

    Currently, year-on-year inflation shot up to 31% in July 2022, latest data from the Ghana Statistical Service (GSS) has revealed.

    However, the cost of borrowing is expected to go up significantly, and consequently, increase cost of living and doing business.

  • Cedi’s free fall; sharp inflation rise push policy rate to 22%

    Cedi’s free fall; sharp inflation rise push policy rate to 22%

    By Elorm Desewu

    The speed depreciation of the fiat currency, the cedi and sharp rise in year on year inflation have compelled the Monetary Policy Committee, (MPC) of the Bank of Ghana to hike the policy rate by 300 basis points to settle at 22 percent from 19 percent.

    This means that cost of credit to households and the private sector would rise steadily in the next couple of months.

    But in a swift attempt to stem the rising inflation as well as the speed depreciation of the cedi, the BoG has raised the primary reserve requirement of banks from 12 percent to 15 percent which is to be implemented in a phased manner: i. 13 percent from 1 st September, 2022 ii. 14 percent by 1st October, 2022 iii. 15 percent by 1st November, 2022

    Additionally, to boost the supply of foreign exchange to the economy, the Bank of Ghana is working collaboratively with the mining firms, international oil companies, and their bankers to purchase all foreign exchange arising from the voluntary repatriation of export proceeds from mining, and oil and gas companies. This will strengthen the central bank’s foreign exchange auctions.

    According to the BoG, the Ghana Cedi has depreciated by 25.5 percent year-to-date, reflecting the Ghana specific situation, including the challenging financing of the budget from both domestic and external sources, downgrading of sovereign credit rating, non-residents disinvestment in local currency bonds, and loss of reserve buffers.

    The US Dollar has strengthened against all major currencies. From the beginning of the year to date, the pound sterling has weakened against the US dollar by 12.4 percent while the Euro has also weakened by 11.8 percent. Countries similar to Ghana (Ghana’s peers) are all experiencing sharp depreciation to date.

    Recent developments in the foreign exchange market showed elevated demand pressures, reflecting among others, continued heightening of uncertainties in the global economy, rising inflation in many advanced economies and the resultant coordinated tightening of monetary policy stance by major central banks. This has further tightened global financing conditions with significant implications for Emerging Markets and Developing Economies (EMDEs), especially for those with weak fundamentals.

    The latest consumer price index release showed that the headline inflation accelerated further for the eleventh consecutive month to 31.7 percent in July 2022, from 29.8 percent in June 2022. This was driven by both food and nonfood price pressures.

    Food inflation rose to 32.3 percent in July 2022 from 30.7 percent in June 2022. Similarly, non-food inflation increased to 31.3 percent from 29.1 percent in June 2022, contributing 55 percent to the rise in headline inflation in July 2022.

    The above developments have translated into relatively strong underlying inflationary pressures. The Bank’s core measure of inflation, defined to exclude energy and utility indices, increased to 30.2 percent in July 2022 from 28.4 percent in June.

    On month-on-month basis, headline inflation rose by 3.1 percent in July 2022 compared with 3.0 percent in June 2022. The increase in monthly inflation was underpinned by increases of 3.3 percent and 3.0 percent in food and non-food inflation respectively.