- June 1, 2022
- Posted by: Amos Ekow Coffie
- Category: Economics
The Governor of the Bank of Ghana (BoG) Dr Ernest Addison, has said key measures were introduced to deal with the fall of the Cedi against the major trading currencies especially the dollar.
He said the monetary policy rate hikes, reversal of the regulatory reliefs, and the announcement effect of the fiscal measures have impacted positively on the FX market, and the local currency has regained some of the first quarter losses.
Speaking at the 6th Ghana CEO Summit on Monday May 30, he explained that although growth prospects remain positive, the macroeconomic challenges have dampened consumer and business confidence in the domestic economy.
“The upside risks to the inflation outlook are significant, and the second-round effects of upward adjustments in ex-pump prices and possible utility tariffs could further amplify inflation pressures in the outlook. We have heard several arguments by stakeholders on the Bank of Ghana’s response to the inflation problem, with some stakeholders arguing that these supply-side shocks cannot be resolved by raising the policy rate especially because the inflation we are experiencing is imported.
“I took sometime during the recent MPC Press Conference to explain that the Bank is very much aware that supply-side shocks are more difficult to deal with. The policy rate tightening emanates from the fact that the MPC assessed that, the shocks are becoming embedded in
“Oil price shocks for example sends price impulses and spreads to other prices in the economy, and then
affects economic agents’ expectations. Monetary policy response is directed at the second round effects of these supply side shocks. Consequently, the policy response to the challenges have been swift, which has seen implementation of prudent monetary and fiscal policies to regain macroeconomic stability,” he said.
Indeed, he added, the inflation challenge has brought to the fore the importance of stability which we take for granted and has shown clearly that macroeconomic stability is a necessary condition needed to enhance confidence and build back better from the pandemic/war effects.
“The measures taken so far include the following: Policy rate hikes: Cumulatively since November 2021, the Bank’s MPC has raised the policy rate by 550 basis points. First, 100 basis points in November 2021, then 250 basis points in March 2022, and additional 200 basis points increase in May. Currently, the policy rate stands at 19 percent. These tight monetary policy actions are expected to dampen the heightened inflationary pressures in the medium term.
“Reversal of Covid-reliefs: In addition to the policy rate increases, the Bank has reversed the prudential regulatory reliefs extended to universal banks at the height of the pandemic. Under these measures, the Cash Reserve Ratio was increased to 12 percent; the Capital Adequacy Ratio reset back to 13 percent; and the provisioning rate for loans in the Other Loans Exceptionally Mentioned (OLEM) category reset to the pre-pandemic level of 10 percent. These are intended to withdraw excess liquidity from the system and moderate
“Extended FX Auctions: To ease off increased volatility in the foreign exchange (FX) market, the Bank extended the forward
auctions to include the Bulk Oil Distributing Companies. This formed part of the measures taken by the Bank to address the
FX liquidity constraints within the local petroleum sector and aid price discovery, especially for the general pricing window within
the downstream sector.
“Fiscal measures: To complement all these efforts, the government announced a 20 percent expenditure cut while enhancing revenue mobilization measures to ensure the attainment of the fiscal deficit target for 2022. The government further announced a syndicated arrangement of US$2 billion in line with approved external financing for 2022 and for liability management.”