The Bank of Ghana Raises its Policy Rate to 14.5%, Citing Inflationary Concerns and Other Factors as Justifications.


The Bank of Ghana’s Monetary Policy Committee (MPC) boosted its Policy Rate – the rate at which it loans to commercial banks – by 100 basis points (1 percent) to 14.5 percent, citing inflation, currency rate, and fiscal and debt sustainability issues.

The MPC has raised its main lending rate for the first time since 2015.

This is likely to raise borrowing costs, but it may help to alleviate recent pressures on the cedi and the price of goods and services.

“From a low of 7.5 percent in May 2021 to 11.0 percent in October, headline inflation has grown steadily, led by rises in both food and non-food prices.”

Furthermore, all of the Bank’s core inflation gauges have risen, showing broad-based underlying inflation pressures with the potential to de-anchor inflation expectations. At the moment, headline inflation is over the upper limit of the medium-term goal range, and the Committee has identified considerable risks to the inflation outlook.”

“These concerns include growing global inflation, high energy prices, food price uncertainty, and investment behavior.” The Committee also stated that the higher inflationary risks necessitate immediate policy action to re-anchor inflation expectations and protect the central bank’s price stability goal.

Given these factors, the Committee decided to raise the policy rate by 100 basis points to 14.5 percent,” according to the MPC comprehensive report.

The Central Bank also stated that the country’s sovereign bond spreads expanded significantly over the period as investor views moved due to fiscal and debt sustainability worries, triggering some investor sell-offs with spillover effects on the local foreign exchange market. This has resulted in some currency pressures over the last two months as demand for the US dollar has surged.

“However, substantial reserve levels provided some buffers and allowed for a far slower rate of depreciation compared to pre-pandemic levels.”

In terms of the outlook, the Committee believes that “the country’s external payment position is robust,” and that “the substantial reserve buffer level should give some certainty to the market and help alleviate investor concerns.”

In terms of growth, the Bank of Ghana stated that the Committee determined that the recovery in the real sector was advancing at a steady pace, with high frequency economic indicators suggesting improved momentum in the tempo of economic activity, near to pre-pandemic levels.

Consumer and business moods have once again turned positive, owing to expected improvements in economic prospects, albeit consumers have expressed concerns about present family budgets.

During the previous quarter, interest rates have been trending downward.

On the money market, interest rates usually fell over the review period.

The 91-day and 182-day Treasury bill rates fell to 12.5 percent and 13.2 percent in October 2021, respectively, from 14.05 percent and 14.11 percent in October 2020. Similarly, the rate on the 364-day instrument fell from 17.0 percent to 16.2 percent throughout the time.

With the exception of the 3-year, 15-year, and 20-year bonds, which stayed steady at 19.0 percent, 19.8 percent, and 20.2 percent, respectively, rates on the remaining medium to long-term securities fell throughout the time.

Rates on the secondary market, on the other hand, have begun to rise throughout the yield curve. Similarly, the weighted average rate in the interbank market fell to 12.7 percent from 13.6 percent, owing largely to better liquidity circumstances, which were passed on to lending rates.

Bank average loan rates fell to 20.3 percent in October 2021 from 21.3 percent in October 2020, in accordance with trends in the interbank market.