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Ghana Monetary Policy November 2022

Ghana: Central Bank hikes policy rate by an additional 250 basis points in November

At its meeting on 25 November, the Monetary Policy Committee of the Bank of Ghana (BoG) hiked its policy rate by a further 250 basis points to 27.00%. This brought the cumulative increase to 1,250 basis points for 2022 to date.

The hike was driven by two factors: further currency depreciation and rising inflation.

The cedi had depreciated by 54.2% year-to-date against the dollar when the BoG took its decision. The weakening of the currency was driven by speculation regarding a possible debt restructuring, which led to portfolio rebalancing in favor of foreign currency assets.

Meanwhile, inflation accelerated for the 18th consecutive month, to 40.4% in October (September: 37.5%)—the highest figure since July 2001—while core inflation rose to 39.7%. This highlighted significant underlying inflationary pressure and cemented the Bank’s decision to increase the main rate.

In its communiqué, the Bank’s tone remained firmly hawkish, reiterating its commitment to anchoring inflation expectations and returning inflation to a downward trajectory. Further rate hikes seem likely ahead: The BoG stated that it expects inflation to “likely peak in the first quarter of 2023 and settle at around 25 percent by the end of 2023”, conditional on maintaining its tight monetary policy stance. However, this would still be well in excess of the BoG’s target range of 6.0%–10.0%. In addition, the BoG stated that risks to the inflation outlook—which would affect monetary policy—were tilted to the upside. These include the proposed hike in the VAT next year, dwindling international reserves and swings in the currency.

Commenting on the outlook, analysts at Goldman Sachs said:

“Bank of Ghana delivered a second consecutive 250bp rate hike to a 27% policy rate, surprising on the hawkish side (consensus: 26.25%) […] We forecast a further 150bp of rate hikes in Q1 2023 to a peak policy rate of 29%. However, given our expectation for FX reserves to decline further (to US$5-6bn at end-year) and ongoing downside risks to the cedi, we see risks tilted toward a higher terminal policy rate.”

The next meeting is scheduled for 24–27 January 2022, with the decision to be announced on 30 January.

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