The Monetary Policy Committee of the Bank of Ghana (BoG) has increased the policy rate by 100 bases points, citing threat to economy growth and the depreciation of the cedi against the US dollar, which is the major currency for import in the West African second largest economy.
The one percent increment from 21 to 22 was announced by the Governor and Chairman of the Monetary Policy Committee (MPC), Dr Henry Kofi Wampah at press brief in Accra, yesterday. This is the highest rate since December, 2003 when the rate was at 21.50 percent.
The decision comes at a time when the BoG has been inundated with calls to cut its lending rate to the commercial banks which is a major cause of high interest rates in the country.
The Policy rate is the rate at which commercial banks can borrow from the central bank. It also has effect on interest rates. With increase in the policy rate, all the commercial banks in the country are expected to increase their base rates within the shortest possible time. This will automatically increase the cost of doing business in the country.
Among the copious reasons cited by the Governor of the Bank of Ghana, Dr Henry Kofi Wampah for increasing the rate by 1% included inflation pressure, and developments in the foreign exchange market indicated a further weakening of the domestic currency in 2015.
He added: “From January to May 8, 2015, the cedi cumulatively depreciated by 17.2 percent against the USD, compared with 21.3 percent recorded in the same period in 2014”.
At the last MPC meeting in February 2015, headline inflation was observed to have moved from 16.4 percent to 16.5 in February 2015.
Since then, inflation has moved further to 16.6 percent in March 2015 driven by both food and non-food inflation. Food inflation picked up from 7 percent to 7.2 percent while non-food inflation moved from 23.0 percent to 23.1 percent over the same period, according to him.
The latest update to the BoG’s Composite Index of Economic Activity (CIEA) suggests a subdued pace of growth in economic activity.
Dr Wampah noted: “The real CIEA grew by 5.7 percent year-on-year in March 2015 compared to 11.1 percent in the same period last year. The key indicators that drove the index were DMBs credit to the private sector, domestic VAT collections, and port activity”.
The consumer and business sentiments were mixed. The overall consumer confidence index increased from 89.9 in January 2015 to 91.2 in April.
However, the business confidence index dipped from 99.2 in December 2014 to 88.9 in March 2015. Both business and consumer inflation expectations went up, he explained.
African Eye News.com
