The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has raised the policy rate by 250 basis points to 17%.
Tightened global financing conditions, uncertainty and volatility surrounding price elements and upwards risk inflations necessitated the move.
During the Bank’s 105th MPC press briefing yesterday in Accra, the Central Bank Governor, Dr. Ernest Addison, said the move is expected to control rising inflation and check the rapid depreciation of the cedi.
He further indicated that both Capital Conservation buffer and Other Loans Exceptionally Mentioned (OLEM) would be reset to pre-pandemic levels effective April 1.
“Headline inflation has risen sharply to 15.7 percent in February 2022, and both headline and core inflation are significantly above the upper limit of the medium-term target band. The uncertainty surrounding price development and its impact on economic activity is weighing down business and consumer confidence,” he said.
“The risks in the outlook for inflation are on the upside and include petroleum price adjustments and transportation costs, and exchange rate depreciation. The Bank’s latest forecast still depicts an elevated inflation profile in the near term, with inflation falling within the medium-term target band within a year,” Dr. Addison added.
“The Bank of Ghana will, effective, 1st April 2022, enforce the following measures in relation to universal banks: The cash reserve ratio has been increased to 12 percent, the capital conversation buffer has been reset to the pre-pandemic level of 3 percent making the capital adequacy ratio a total of 13 percent and the provisional rate for loans in the other loans exceptionally mentioned category, has been reset to the pre-pandemic level of 3 percent,” he noted.
Ghana’s external sector
He further disclosed that the Russia-Ukraine war is likely to impact negatively on Ghana’s external sector, particularly in the area of some key construction and agricultural commodities.
Dr. Addison told pressmen that in recent past, an average of about 2.5 percent of Ghana’s total non-oil imports had originated from Russia and Ukraine and around 0.4 percent of Ghana’s total exports are destined to Russia and Ukraine.
“The main import items from Russia are grains, wheat flour and fertilizers. In 2021, around 28.7 percent of Ghana’s grains imports came from Russia and for the first two months of 2022, grains imports from Russian accounted for 31.2 percent of the total grain imports. And about 50.0 percent and 39.2 percent of flour and fertilizer imports respectively, were sourced from Russia in the first two months of this year. Ghana’s main exports to Russia are cocoa beans and products and it accounted for 0.2 percent of total cocoa exports. These have important implications for the supply and prices of these major items imported from Russia,” he said.
“Ghana’s major imports from Ukraine are iron ore and steel accounting for over 60 percent of the total iron ore and steel imports. As a result of this fact, the construction industry will likely face some challenges in terms of supply disruptions and prices of steel and iron ore imports,” he added.
With regard to exports, manganese is the major item exported to Ukraine, and for the first two months of this year, manganese shipment to Ukraine accounted for around 12 percent of the total manganese exports. Over the past few years, manganese exports to Ukraine has accounted for over 20 percent of the total manganese exports.
Domestic growth
The Central Bank Governor said that domestic growth conditions are fairly strong, despite signs of weakening consumer and business sentiments as reflected in the Bank’s updated Composite Index of Economic Activity (CIEA).
“The index recorded an annual growth of 4.2 percent in January 2022 compared to 13.9 and 3.4 percent in the corresponding periods of 2021 and 2020. The key drivers of the index during the period were industrial production, exports, credit to the private sector and air passenger arrivals. Consumption of goods and services, and construction activity, however, slowed down, acting as a drag on the index,” Dr. Ernest Addison said.
