Ghana: Bank of Ghana hikes policy rate in a surprise move in November
November 16, 2015
At its 14 November monetary policy meeting, the Bank of Ghana (BOG) decided to hike its monetary policy rate by 100 basis points from 25.00% to 26.00%. The policy rate now stands at the highest level on record. The decision came as a surprise to the markets as they had expected the Bank to keep the policy rate unchanged at 25.00%. This is the third meeting since November of last year in which the Bank has decided to increase the policy rate in an effort to fight high inflation.
On the domestic front, the Monetary Policy Committee (MPC) pointed out that challenges in the energy sector along with fiscal consolidation continue to drag on GDP growth. For the first nine months of the year, the fiscal deficit was 5.1% of GDP, which was an improvement compared to the government’s target of 5.7% of GDP. The Bank added that external developments pose a significant risk to the domestic economy. The Committee expects that, “in the medium term, growth conditions are expected to recover, supported by a turnaround in the energy situation, increased production of oil and gas and a general improvement in the macroeconomic environment as inflation starts trending down.”
In October, inflation was stable at September’s 17.4%, which reflected the effect of the tight monetary policy as well as falling oil prices. Nevertheless, the Bank considers inflationary pressures to be quite high, mainly reflecting exchange rate volatility, worsening external financial conditions and a significant increase in utility tariffs. The Bank commented that, “the current level of inflation and the latest inflation expectations remain far above the medium term target band of 8±2 percent.”
Author: Dirina Mançellari, Senior Economist