Ghana hikes interest rate to 22% to combat inflation, forex crises

Ghana’s central bank has raised its interest rate by 300 basis points to 22% to tame inflation and stabilize the nation’s tumbling exchange rate at a special monetary policy meeting on Wednesday, August 17.

This was disclosed by the Bank of Ghana in a press release from an emergency meeting.

The monetary policy committee also decided to hike the primary reserve requirement of banks to 15% from 12%, to be implemented gradually from September 1 to November 1.

The bank in a statement said, “The Monetary Policy Committee (MPC), today held an extraordinary meeting to review recent developments in the economy and assess risks to the outlook. The Committee took note of the increase in inflation in July and heightened pressures in the foreign exchange market and deliberated on the underlying drivers,” the Bank said.

“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%.”

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The central bank is also planning to buy foreign exchange from mining and oil companies to beef up its reserves, according to the statement.

The bank said, “To boost the supply of foreign exchange to the economy, the Bank of Ghana is working collaboratively with the mining firms, international oil companies, and their bankers to purchase all foreign exchange arising from the voluntary repatriation of export proceeds from mining, and oil and gas companies. This will strengthen the central bank’s foreign exchange auctions”.

At the time of writing, the Ghanaian cedi has dropped by a whopping 53.71 % against the US dollar since the start of the year.

Ghana’s Misery Index climbed to 60.8 in July nearly doubling the 31.51 scores recorded at the end of 2021. Ghana’s economic misery has worsened by an eye-popping 92.9%.

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Despite efforts by the central bank to contain the increasing prices through previous rate hikes, inflation continues to rise. The headline inflation rate in Ghana increased to 31.7% in July 2022 from the previous month’s 29.8%.