The Bank of Ghana is under pressure to further hike the policy rate as inflation accelerated for the 19th straight month in December 2022.
Consumer prices rose to 54.1% from 50.3% the month earlier as food, transport, and housing costs quickened. The December inflation rate was the highest in 22 years.
Inflation has remained well above the central bank’s ceiling of 10% since November 2021, despite raising its policy rate by 13.5% to 27% to ease the price pressures. The cost of fighting inflation has been dire on the economy as borrowing costs reached a 19-year high in November.
“The consistent rise in inflation indicates that the monetary policy tools have been that effective. So, the Bank of Ghana can hold on with the hikes so that the supply-side issues can be dealt with,” Chief Executive of the Association of Ghana Industries Seth Twum Akwaboah told 3Business.
However, prices are predicted to fall in January as fuel costs drop and the cedi record gains following a staff-level deal with the International Monetary Fund for a $3 billion bailout.
But some analysts still anticipate a moderate hike in the benchmark interest rate as the central bank may want to signal that prices have not peaked yet.
“We expect the policy rate to go up by 100-basis points. Though month-on-month inflation has slowed, the 2.5% increase in the Value Added Tax coupled with the resurgent struggles of the cedi may add up to the price pressures. And that means inflation could remain on the higher side,” Lead Researcher with Accra-based GCB Capital, Courage Boti, told 3Business.
The Bank of Ghana forecasts inflation to peak in the first quarter of 2023 and end the year at 25%.
Ghana is restructuring its debt to get IMF-board approval for an agreed bailout package as the cocoa, gold, and oil producer’s debts exceeded the size of its economy in 2022.
The country has offered new bonds in exchange for “old bonds” with coupon rates at zero until 2024. But individual bondholders have rejected the offers, threatening to file class-action lawsuits if the government fails to exclude them from the domestic debt exchange programme.
Sani Abdul-Rahman – 3Business
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