High inflation forces Central Bank to reverse policy rate to 14.5%

he Central Bank has increased its policy rate by 100 basis points.

With the 100 basis points increment, the Bank’s new policy rate stands at 14.5% and marks the CentraI Bank’s decision to return to the 14.5% policy rate after it initially reduced it by 150 basis points from 16% in March 2020 as part of counter-cyclical measures to mitigate the impact shock of the coronavirus pandemic on the country.

The increment in the policy rate was announced by Governor of the Bank of Ghana, Dr Ernest Addison on Monday, November 22, 2021.

With the increment in the policy rate, lending rates by commercial banks to businesses is expected to increase in line with the new policy rate.

Announcing its decision to increase the policy rate to 14.5 percent, the Central Bank via a press release noted, “Headline inflation has risen consistently from the low of 7.5 percent in May 2021 to 11.0 percent in October driven by both food and non-food price increases. In addition, all the Bank’s core measures of inflation have increased, indicating broad-based underlying inflation pressures, with the potential of de-anchoring inflation expectations.

“Currently, headline inflation is above the upper limit of the medium-term target band and the Committee noted significant risks to the inflation outlook. These risks include rising global inflation, high energy prices, uncertainties surrounding food prices and investor behaviour. The Committee further noted that these elevated inflationary risks, require prompt policy action to re-anchor inflation expectations to safeguard the central bank’s price stability objective.

“Given these considerations, the Committee therefore decided to raise the policy rate by 100 basis points to 14.5 percent.”

Source: norvanreports.com