Accra, Nov. 28, GNA – The Monetary Policy Committee of the Bank of Ghana has increased the policy rate by 250 basis points to 27 per cent, citing risks to inflation.
Dr Ernest Addison, the Governor of the Bank said two years since the Covid-19 pandemic and a war in-between, the global economy continued to face severe headwinds coupled with heightened uncertainties.
Dr Addison made this known at a press briefing after the 109th Monetary Policy Committee (MPC) meetings in Accra.
The Committee deliberated on recent macroeconomic developments and assessed risks to the inflation and growth outlook.
He said the global growth had slowed, with recession concerns dominating markets in the near term with global inflation remaining high, driven largely by food and energy prices.
He said the Central Banks’ resolve to dampen the persistent and broad-based inflation pressure globally had led to aggressive policy tightening in advanced economies.
The Governor said the risks to the global outlook were firmly on the downside reflecting possibility of policy mistakes amid deteriorating growth and elevated inflation, tighter financing conditions, and stronger US dollar.
“These external shocks have had severe consequences on the Ghanaian economy, reflected in high and rising inflation from exchange rate pass-through effects, and complicated the policy environment,” he added.
He said the foreign exchange market witnessed increased volatility, with intense pressure on the local currency, especially in September and October.
Factors such as tightening global financing conditions, the sovereign downgrades, the de- facto closure to the international capital market, portfolio reversals, and increased demand for foreign exchange amid supply constraints, contributed to the significant weakening of the Ghana cedi.
Dr Addison said recently, the sharp depreciation episode was driven by speculation of a possible debt restructuring which led to portfolio rebalancing in favour of foreign currency holdings as against Ghana cedi denominated assets.
“Looking ahead, the next few readings of inflation will shed light on the extent of pass-through of the accelerated depreciation of the Ghana cedi in October on inflation dynamics,” he added.
He said notwithstanding the significant improvement in the trade surplus, largely driven by higher export receipts from increased gold production and higher crude oil prices, relative to imports, the current account deficit widened, reflecting increased cost of imported petroleum products arising from higher crude oil prices.
This underscores the fact that, on average, higher crude oil prices have relatively modest gains on the trade account.
He said the implementation of the 2022 Budget had come under severe stress and revenue shortfalls, expenditure rigidities, lack of access to the international capital market to fund the budget, uncovered auctions and non-resident portfolio reversals have all acted to create a huge financing gap.
“With access to the external capital market closed and the domestic market under performing, there has been severe pressure on the Bank of Ghana’s overdraft facility available to the Government for short term cash flow management, without which the Government would have had difficulty in meeting its obligations,” he said.
The Governor said the 2023 Budget Statement had committed to reset fiscal policy and firmly place it on the course of fiscal consolidation with the announcement of the new revenue measures and expenditure rationalization measures.
He said to guarantee debt sustainability over the medium term, a debt exchange operation is proposed to be undertaken to support the consolidation agenda.
Dr Addison said the broad expectation was for steadfast implementation of these measures to foster confidence, improve the debt-metrics and complement the current monetary policy stance at tackling current inflationary pressures.
GNA