Bank of Ghana projected to increase policy rate if upside risks continue – Report

BoG keeps policy rate unchanged at 14.5% for January 2022

Inflationary risks to push policy rate upwards

COVID-19, oil demand to place more pressure on central banks

The research arm of rating agency, Fitch Solutions has projected that Ghana’s central bank will significantly increase its monetary policy rate should upside risks to the economy continue throughout

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According to the agency’s February 2022 West Africa Monitor Report, it explained that risks to the outlook are heading towards a high-interest rate increase despite the Bank of Ghana’s current forecast.

It further said inflationary pressures due to increasing government expenditure and constraints in global supply chains will place more pressure on the Bank of Ghana.

“A further factor influencing Ghanaian monetary policy in 2022 will be the US Federal Reserve (Fed). We expect the Fed to hike its funds rate target range by 25 basis points (0.25%) in response to rising inflation, which our global team expects to remain higher and stickier than previously expected.”

“This will put pressure on the BoG to maintain Ghana’s interest rate differential with the US, with the view to stemming capital outflows and supporting the currency.” it added.

Touching on oil price trends and hikes, Fitch Solutions projects that the Bank of Ghana will implement a larger increase to its benchmark policy rate

“Risks to the outlook are tilted towards a larger interest rate hike by the BoG than our current forecasts indicate. Should oil prices trend higher than our Oil & Gas team’s forecasts currently indicate, transport inflation would accelerate further, pushing up headline price growth and prompting the Central Bank to implement a larger increase to its benchmark policy rate.”

Meanwhile, the Bank of Ghana has maintained its monetary policy rate at 14.5 percent after its first meeting of January 2022.

The policy rate is of keen interest to businesses and the private sector as it determines the rate at which the Central Bank will lend to commercial banks. It also subsequently influences average lending rates on loans to individuals and businesses.