Ghana’s central bank has announced its largest-ever interest rate hike to halt the country’s spiralling inflation fed by global tensions in Europe.
The Bank of Ghana increased its primary lending rate by 250 basis points to 17%, signalling a tough stance against rising prices for everything from flour to sugar to fuel, as well as a weakening local currency that has harmed investor confidence.
Ghana’s cedi has lost roughly 20% of its value versus the dollar this year, making it the second-weakest currency in a list of some 20 emerging market currencies tracked by Reuters, after the Russian rouble.
According to the Governor of the Bank of Ghana, Dr Ernest Kwamina Addison, Ghana buys roughly a quarter of its wheat from Russia and about 60% of its iron ore from Ukraine, however, they expect inflation to revert to its goal range of 8% plus or minus 2% by the end of the year.
“The uncertainty surrounding price development and its impact on economic activity is weighing down business and consumer confidence. The risks to inflation are on the upside.” Dr Ernest Kwamina Addison.
Ghana’s central bank move for an aggressive contractional policy stands to address mounting inflation. The decision was given as: Under these circumstances, the Committee has decided to increase the policy rate by 250 basis points to 17%.
In addition to the upward policy rate adjustment, the Bank of Ghana will, effective April 1, 2022, enforce the following measures in relation to universal banks: The Cash Reserve Ratio is increased to 12%; The Capital Conservation Buffer is reset to the pre-pandemic level of 3%, making the Capital Adequacy Ratio a total of 13%; and the provisioning rate for loans in the Other Loans Exceptionally Mentioned (OLEM) category is reset to the pre-pandemic level of 10%.
According to the IMF’s revised World Economic Outlook report, global growth will slow from 5.9% in 2021 to 4.4% in 2022. As a result of the latest developments in the Russia-Ukraine war, additional moderation of anticipated global growth forecasts is expected, especially if the war continues.