Cost of borrowing goes up again as Policy Rate move from 28% to 29.5%

The Bank of Ghana has increased its policy rate by 150 basis points to 29.5 percent from 28 percent.

The decision was taken as part of efforts to stabilize the economy and reduce inflation.

Speaking during the 111th Monetary Policy Committee (MPC) press briefing on Monday, Governor of the Central Bank, Dr Ernest Addison said while inflation has declined in the past few months, there is the need for measures to be instituted to put the economy on the path of stability.

“Headline inflation has declined marginally for two consecutive months, but continues to remain relatively high compared to the medium-term target of 8±2%.”

“To place the economy firmly on the path of stability and reinforce the pace of disinflation, it is important that the monetary policy stance be tuned further to re-anchor inflation expectations towards the medium-term target. Given these considerations, the MPC decided to increase the Monetary Policy Rate by 150 basis points to 29.5%”, he said.

The increase in the Monetary Policy rate means average lending rates will shoot up considerably pushing the cost of credit up.

Meanwhile, the Committee noted that while there is a significant positive outlook for the Ghana’s domestic inflation profile due the ease in price pressures abroad, the domestic economy faces the challenge of tight global financing conditions, emerging risks in the global financial system, and heightened uncertainty about the global economic outlook.

“The effects of these on the domestic economy could be amplified by inherent vulnerabilities, including structural excess liquidity following the DDEP, and the widening negative output gap,” Dr. Addison noted.