In a significant move to combat surging inflation, Ghana’s monetary policy committee has made a decisive decision, voting to increase the country’s benchmark interest rate to a substantial 30%.
The rise comes as the nation reported a worrisome inflation rate of 42.5%, prompting Central Bank Governor, Ernest Addison, to defend the move as necessary to safeguard the ongoing disinflation trend.
The recent uptick in consumer inflation, measured by the Ghana Consumer Price Index (GHCPIY=ECI), raised concerns after four months of slowing down. This moderation followed a record-breaking 54.1% year-on-year surge in December, which marked the highest rate seen in over two decades.
At a press conference, Governor Addison underlined the importance of the interest rate hike, asserting that policy tightening will continue until the desired inflation level is achieved.
However, he also stressed the need for a comprehensive approach, recognizing that monetary policy alone cannot solely tackle inflation. To avoid persistent increases in the policy rate, he called for complementary fiscal measures to support the effort.
- “You will continue to see policy tightening until we get inflation where we want it to be,” Addison told a news conference. “But we also cannot look at it in isolation, because monetary policy alone cannot deliver that low inflation. We expect that, you know, the fiscal side of the work would also have to come in not to have these persistent increases in the policy rate.”
The Central Bank has been gradually raising interest rates since late 2021, with measured pauses in its hiking cycle. Notably, the timing of Governor Addison’s call for fiscal tightening aligns with Finance Minister Ken Ofori-Atta’s upcoming mid-term budget review presentation in parliament.
Looking ahead, the Central Bank pledges to closely monitor inflation data in the coming months and respond proactively as required.
Additionally, Governor Addison disclosed that there remains uncertainty surrounding Ghana’s engagement with bilateral creditors on the topic of debt restructuring, hinting that formal discussions may not have commenced yet.
As the country takes these critical steps, stakeholders anxiously await the impact on inflation and the broader economy.