Ghana: Central Bank raises rates for the first time in six years in November
At its final scheduled meeting of the year on 17–19 November, the Monetary Policy Committee of the Bank of Ghana (BoG) voted to raise the policy rate by 100 basis points to 14.50%, marking the first increase in six years and surprising the majority of market analysts, who had widely expected the Bank to stand pat through 2021.
The decision to raise rates came amid a steady economic recovery and mounting price pressures. Inflation rose to 11.0% in October from 10.6% in September, marking the highest reading in 16 months. Although these underlying price pressures were previously seen as contained, the Bank now believes that rising global inflation, elevated energy prices and investor behavior pose serious risks to the inflation outlook. This warranted swift action in order to guide inflation back towards the Bank’s 6.0%–10.0% target band. Meanwhile, high-frequency indicators continue to point towards healthy economic growth, while secondary data hints at upbeat consumer and business sentiment, giving the Bank further room to raise rates.
In its communiqué, the BoG did not provide any explicit forward-looking statement, but noted that “these elevated inflationary risks require prompt policy action to re-anchor inflation expectations to safeguard the Central Bank’s price stability objective” That said, the majority of our panelists see rates remaining stable in 2022.
Commenting on the outlook, Andrew Matheny, economist at Goldman Sachs, commented:
“All things considered, our baseline expectation is for the Bank to raise rates by another 200bp through 2023 in an environment of pro-inflationary dynamics—globally and domestically—continued fiscal and external pressures and downside risks to the currency.”
The next meeting is scheduled for 25–28 January 2022, with the decision to be announced on 31 January.