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Ghana Monetary Policy August 2022

Ghana: Central Bank calls emergency meeting, hikes policy rate by 300 basis points

At an extraordinary meeting on 17 August, the Monetary Policy Committee of the Bank of Ghana (BoG) hiked its policy rate by 300 basis points to 22.00%—the largest hike in 22 years. This brought the cumulative total to 750 basis points of hikes in 2022. Moreover, in order to restore its reserves, the BoG decided to purchase all foreign exchange from mining, and oil and gas companies.

The emergency hike was driven by a 17.5% month on month currency depreciation between mid-July and mid-August, with the cedi having depreciated 25.5% in 2022 by the time that the BoG’s meeting took place. Since then, it has devaluated further to approximately 37.0% of its end-2021 value. According to the BoG, this weakening reflected domestic challenges, including harsher financing conditions from both domestic and external sources, recent downgrades of sovereign credit ratings by S&P and Fitch in August, nonresidents’ disinvestment in local currency bonds and loss of international reserve buffers. In addition, inflation accelerated further for the eleventh consecutive month to 31.8 percent in July (June: 29.8%)—the highest figure in nearly 19 years—further cementing the Bank’s decision to hike the main rate.

In its communiqué, the Bank noted that the ongoing discussion with the IMF concerning a loan should address the country’s structural challenges, such as fiscal and debt sustainability as well as insufficient international reserves. Nonetheless, the BoG’s tone remained hawkish, outlining that the elevated hike was justified to address the immediate inflationary and currency pressures.

Looking ahead on monetary policy, Gbolahan S Taiwo, research analyst at JPMorgan, commented that:

“After a cumulative 850bp hike to the policy rate since November 2021, the BOG should take a breather in September. Cyclically, domestic food inflation should start to slow over the coming months amid harvest season.”

The next meeting is scheduled for 20–23 September, with the decision to be announced on 26 September.

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