Ghana: BoG unexpectedly raises rates in July
At its meeting on 19–21 July, the Monetary Policy Committee of the Bank of Ghana (BoG) increased its monetary policy rate by 50 basis points to 30.00%. The move surprised markets on the upside, as it had been expected that it would once again stay put, after holding in May.
The decision was driven by the recent increase in both headline and core inflation, as well as higher inflation expectations, despite the elimination of budget monetary financing. Meanwhile, after a 20% depreciation in January, the Bank noted that the cedi had remained stable in February–June amid a current account surplus and an increase in external reserves. Improved domestic macroeconomic stability following an agreement over USD 600 million in financial support—the first tranche of financing from the IMF arrangement—also contributed to restoring investor confidence, limiting the cedi’s depreciation during this period. Lastly, the BoG noted that economic growth had overshot market expectations in the first quarter of the year, giving it ample room to hike rates further.
In contrast with its previous statements, the BoG provided some forward guidance, emphasizing that upside risks to inflation, coming from second-round effects, are elevated. As such, the Bank maintained that there is a need to further tighten the monetary policy stance to avoid the persistence of price pressures and anchor inflation expectations. The majority of our panelists have penciled in 25 basis points of further tightening by the end of 2023.
The next monetary policy meeting will take place on 18–22 September, with the decision set to be announced on 25 September.