BoG increases monetary policy rate to 21%
The Bank of Ghana (BoG) has raised its key lending rate from 19 per cent to 21 per cent to stem fiscal pressures and weak revenue performance.
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This is the highest single increase in a Monetary Policy Committee (MPC) sitting since March 2010 and is expected to further tighten credit to the private sector.
The Governor of the BoG and Chairman of the MPC, Dr Henry Kofi Wampah, said fiscal pressures, including weak revenue performance, rising debt service costs, a large public sector wage bill and outstanding payments owed to statutory funds, posed a risk to fiscal consolidation in the medium term.
The latest move by the BoG is expected to swiftly push interest rates above the 30 per cent bracket, which is beyond the reach of micro, small and medium scale enterprises (MSMEs).
At the moment, the reverse repo rate, which is the rate at which the central bank lends to commercial banks, remains at 24 per cent and an average addition of five per cent by most commercial banks to set their base rates, in addition to the risk margin of average three per cent, depending on the networth of the client.
Commercial banks may charge a minimum 30 per cent and a maximum 33 per cent on credit.
But at an MPC news conference in Accra, Dr Wampah defended the hike in the policy rate, saying, “The committee decided to maintain the current tight policy stance and at the same time realign rates in the money market within the interest-rate corridor.”
According to him, the policy rate was increased from 19 per cent, while the interest-rate corridor was narrowed to 300 basis points from 500 basis points.
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Inflation now 16.9
Meanwhile, Ghana’s annual consumer price index rose to a fresh four-year high of 16.9 per cent in October from 16.5 per cent the previous month, according to the Ghana Statistical Service.
The worry is that the government’s risk free debt instrument has also increased from 19.2 to 25.5 per cent for the 91-Day Treasury bill, while the 182-Day instrument also increased from 18 to 26.4 per cent.
Ghana's economy has grown rapidly in recent years due to its export of oil, cocoa and gold, but the government is struggling to stabilise the economy in the face of a high budget deficit and a currency that has fallen sharply this year.
A rebound in the currency following the government’s talks with the International Monetary Fund (IMF) on a loan programme may help improve the inflation outlook in the country.
The cedi has climbed 14 per cent against the dollar since the beginning of August when the IMF talks began. It was trading at GHC3.22 to a dollar as of 1:19 p.m. in Accra yesterday, after cumulatively losing 32 per cent weight against the dollar since the beginning of the year.