According to reports from Reuters and U.S. News, the Bank of Ghana has decided to keep its policy rate unchanged at 29.5%. The central bank cited tight monetary policy and relative exchange rate stability as factors that contributed to a decrease in inflation in the country.
This marks the second time this year that the bank has maintained its main interest rate, following a 100 basis points increase to 28.00% in January, as reported by FocusEconomics.
Ghana is currently experiencing its most severe economic crisis in decades, and the International Monetary Fund's executive board has approved a three-year support program worth $3 billion to assist the country in overcoming the crisis, according to Reuters. The approval allows for an immediate disbursement of approximately $600 million.
The Governor of the Bank of Ghana, Ernest Addison, noted a significant decline in headline inflation since the beginning of the year and a decrease in the percentage of items in the Consumer Price Index (CPI) basket with inflation rates exceeding 50%, as reported by Reuters.
In April, consumer inflation slowed for the fourth consecutive month, dropping from a more than two-decade high of 54.1% in December to 41.2% year-on-year in April, compared to 45.0% in March, according to U.S. News. To combat inflation and stabilize the currency, Ghana's central bank has been raising interest rates since November, with a cumulative increase of 1,450 basis points.
Analysts at EIU predict that the bank will continue to raise rates throughout 2023, with the policy rate expected to reach 32.50% by the end of the year. They anticipate that the rate will then be held steady, albeit at a high level, in 2024 as inflation begins to slow down.
The Bank of Ghana's Monetary Policy Committee (MPC) uses the Monetary Policy Rate (MPR) as its primary policy tool, which signals the stance of monetary policy and influences short-term market interest rates, according to the bank's website.
The website provides a Policy Rate Trends graph that presents the historical trends in the key policy rate of the Bank of Ghana. The current inflation rate is 19.5570, and the 91-Day Treasury Bill Rate is 8.0 ± 2, as stated on the Bank of Ghana's website.
In summary, the Bank of Ghana has maintained its policy rate at 29.5% due to tight monetary policy and relative exchange rate stability, which have contributed to curbing inflation in Ghana. The country is currently grappling with its worst economic crisis in decades and has received a $3 billion three-year support program from the International Monetary Fund.
Despite ongoing efforts to raise interest rates and stabilize the currency, inflation remains high, and the Bank of Ghana is expected to continue raising rates throughout 2023 before stabilizing them at a high level in 2024 as inflation subsides.
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