Cost of living expected to go up as BoG increases policy rate to 17%

The cost of living and the cost of doing business is expected to shoot up significantly in the coming days.

This follows the increment of the policy rate by 250 basis points to 17 percent.

This forms part of moves by the governmnet to control the rising inflation which has led to skyrocketing prices in goods and services as well as the free-fall of the Ghanaian cedi against the US dollar.

At a press briefing announcing the new policy rate – the rate at which the Central Bank lends to commercial banks – the Governor, Dr Ernest Addison expressed optimism that the new key rate will help control inflation.

“The Sovereign credit rating downgrades of Ghana by Fitch and Moody’s led to widened yield spreads on both cedi-denominated Government of Ghana bonds and the country’s Eurobonds. These downgrades reflect market and investor concerns about fiscal and debt sustainability. Consequently, the Ghana Cedi has come under severe pressure as offshore investors exited positions in domestic securities at a time when domestic demand for forex has increased, reflecting both real and speculative demand. This has caused the exchange rate to overshoot its long-term trend. The strengthening of the US dollar, liquidity pressures, uncertainties regarding budget implementation, portfolio reversals by nonresidents and some speculative pressures are key contributory factors”, he explained.

He further added “at this MPC meeting, the combination of tighter global financing conditions, sharp pressures on the exchange rate, and elevated inflation pose some policy challenges. 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 developments and its impact on economic activity is weighing down business and consumer confidence.”

“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.”

Analysts are predicting that the increment in the policy rate will see the cost of loans going up with immediate effect which means cost of living and cost of doing business will also go up, while consumer spending will decline significantly.

Source: thenewsroomonline.com