The Bank of Ghana (BoG) at its emergency Monetary Policy Meeting on Wednesday, August 17, 2022, raised the policy rate from 19% to 22%.
According to the BoG, one of the reasons for the upward adjustment of the lending rate is the US Dollar strengthening against all major currencies.
“From the beginning of the year to date, the pound sterling has weakened against the US dollar by 12.4 percent while the Euro has also weakened by 11.8 percent. Countries similar to Ghana (Ghana’s peers) are all experiencing sharp depreciation to date.
“The Ghana Cedi has depreciated by 25.5 percent year-to-date, reflecting the Ghanaspecific situation, including the challenging financing of the budget from both domestic and external sources, downgrading of sovereign credit rating, nonresidents disinvestment in local currency bonds, and loss of reserve buffers,” the Central Bank explained.
It further noted that the execution of the budget for the year has remained challenging adding that revenue has not kept pace with projections and created financing challenges.
“In the absence of access to the international capital market and given the constrained domestic financing, central bank overdraft has helped to close the financing gap as reflected in the mid-year budget review. The Bank of Ghana is working with the Ministry of Finance to agree on a cap on the overdraft.
“Whilst addressing the immediate financing problems, the ongoing policy discussions with the IMF are expected to address the underlying macroeconomic challenges, restore fiscal and debt sustainability, and provide a sustainable balance of payments cushion.
“Under the circumstances, and considering the risks to the inflation outlook, the Committee decided on a 300 basis points increase in the Monetary Policy Rate to 22 percent.”