The Bank of Ghana on Wednesday increased its monetary policy rate by 200 basis points to 21% as the central bank continues to tighten money supply in the economy and fight inflation.
The decision to up the monetary policy rate, which signals interest rate trends, will make it expensive for businesses and consumers to borrow whiles it will put ongoing loan settlement plans out of gear.
The Governor of the Bank of Ghana, Dr. Henry Kofi Wampah explained at the end of the central bank’s 62nd Monetary Policy Committee meeting in Accra that the continues rise in inflation is of grave concern to managers of the economy necessitating the Bank of Ghana to reduce demand for credit facilities.
Inflation for the month of October reached 16.9 percent, up by 0.4 percent from 16.5 percent recorded in September this year. This puts the government’s end of year inflation target of 15 per cent out of range.
Dr. Wampah noted: “Prices on the other hand continued to rise since the last meeting as headline inflation reached 16.5 percent. This was on the backdrop of the pass-through of the depreciation of the cedi which pushed up prices of fuel, transport and imported food items. Food inflation was 5.8 percent up from the 5.1 percent recorded in August 2014 while non-food inflation was barely unchanged at 24.1 percent compared to 24.0 percent recorded in August.
“The Committee was concerned about the outward shift in the medium term inflation path relative to the previous forecast. The latest forecast indicates that inflation would continue to remain outside the target band but expected to ease gradually towards the medium term target band of 8.0±2 percent in the first half of 2016.
“The ease in inflation over the policy horizon is contingent on significant fiscal consolidation and maintenance of the tight monetary policy stance. In the absence of these, the inflation target could take a longer duration in excess of 12 quarters to be achieved, considering the vulnerabilities in the economy.
“The Committee decided to maintain the current tight policy stance and at the same time re-align rates in the money market within the interest rate corridor,” he said.
Dr. Wampah said the central has thus taken the decision to: “Increase the monetary policy rate from 19 percent to 21 percent to ensure that the existing tight monetary policy stance is maintained whilst still operating within the corridor set by the Committee.”