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Ghana Monetary Policy October 2022

Ghana: Central Bank hikes policy rate by 250 basis points in October

At its meeting on 6 October, the Monetary Policy Committee of the Bank of Ghana (BoG) hiked its policy rate by 250 basis points to 24.50%. This brought the cumulative total to 1,000 basis points of hikes in 2022.

The hike was driven by two factors: further currency depreciation, amid declining international reserves; and rising inflation. The cedi had depreciated by 37.5% year-to-date against the dollar when the BoG took its decision. In effect, this means the currency had depreciated a further 12.0 percentage points following the emergency meeting in mid-August, when the BoG hiked the rate by 300 basis points. Meanwhile, inflation accelerated further for the 16th consecutive month to 33.9% in August (July: 31.8%)—the highest figure in 21 years—further cementing the Bank’s decision to increase the main rate.

In its communiqué, the Bank’s tone remained firmly hawkish. It noted inflation risks remained tilted to the upside and it explained its commitment to anchoring inflation expectations and returning inflation to a downward trajectory. That said, the Bank also noted that the cedi’s outlook has improved, reducing the need to hike. The Bank cited as elaboration two loan receipt inflows amounting to USD 1.9 billion and an agreement with gold and oil companies to purchase foreign exchange earnings.

Commenting on the decision, analysts at Goldman Sachs said:

“The Bank of Ghana hiked its policy rate by 250bp to +24.5% in a hawkish surprise to expectations […]. We view today’s policy decision as a frontloading of most of the increases we had in our forecast for the remainder of the year (300bp total). That said, we also think risks are tilted towards more hikes, particularly if additional FX and balance of payments risks materialise.”

Looking ahead, analysts at JPMorgan commented that:

“Our inflation profile sees a peak around 36.5% in December before a sticky disinflation path into 1Q23 while base effects lead a more meaningful downward path into 2H23. However, risks around our forecasts remain tilted to the upside owing to [currency pressures, upward adjustments to utility tariffs and higher inflation expectations] which may yet see the BOG deliver further tightening.”

The next meeting is scheduled for November 22–25, 2022, with the decision to be announced on 28 November.

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