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Central Bank increases interest rate by 100 basis points.

Central Bank increases interest rate by 100 basis points.
Dr. Ernest Addison, BOG Governor.

The Bank of Ghana's Monetary Policy Committee increased the policy rate by 100 basis points (1%) to 28%, citing the need to reduce inflation.

“In the interim, the MPC sees the need to remain vigilant and moderate liquidity in the system to underpin macroeconomic adjustments taking place to drive inflation on a downward path,” the Governor of the Bank of Ghana, Dr. Ernest Addison, told a press conference on Monday.

Dr. Addison said that domestic economic conditions, which weakened in 2022, were likely to decrease further and stay below potential over the near-term, based on the rising inflation levels. 

Due to rising food prices, the inflation rate reached a high of54.1% in December.

Comparatively to a gain of 10.2 percent during the same time in 2021, the Composite Index of Economic Activity (CIEA) was revised and showed a contraction of 6.2 percent in November 2022.

Even if the most recent polls indicated a little uptick in consumer and business confidence, Dr. Addison noted the CIEA revealed a persistent decline in economic activity. Credit to the private sector increased significantly in nominal terms, but pricing constraints restrained it in real terms.

The governor said that there were early indications that the present macroeconomic circumstances were affecting the banking industry.

He cited the declining profitability levels as one example of many financial soundness indicators.

Banking profitability levels have fallen as a result of increasing loan impairments, larger mark-to-market losses on assets, and growing operational expenses. At the end of December 2022, profit after tax was GHS 3.9 billion, showing an 18.9 percent year-over-year decline as opposed to the 12.3 percent yearly gain seen in 2021.

“The latest macro-prudential risk assessments indicated increased pressure on solvency and liquidity of banks ahead of the implementation of the Domestic Debt Exchange Programme. To moderate the potential impact on the sector, the Bank of Ghana has announced some regulatory reliefs for banks to help preserve financial stability.

He said the Government’s Staff Level Agreement (SLA) with the IMF spelt out measures to put the fiscal on the path of consolidation.

Consistent with the SLA was the 2023 Budget which has just been passed by parliament and frontloads the consolidation efforts, he said.

Revenue enhanced measures such as the VAT increase of 2.5 percent, the complete removal of benchmark values on imports, and the review of the E-Levy should help improve the revenue outlook, the Governor added.

On the expenditure side, the lower capping on transfers to earmarked funds from 25 to 17.5 percent, and the reduction of budgetary allocation to goods and services, as well as rationalisation of executive compensation should help contain expenditures in 2023.

“The concerns being expressed in the public domain relating to high government expenditures have been addressed in the SLA and reflected in the 2023 Budget,” he said.

The SLA is also contingent on the Domestic Debt Exchange Programme and external debt restructuring, which when concluded and the necessary financial commitment obtained, will allow the presentation of the SLA to the IMF Board.

“The MPC believes that these measures will help restore fiscal and debt sustainability and bring down inflation as well as help stabilise the currency,” he said.

The nation's trade surplus more than quadrupled to US$2.8 billion in 2022 from US$1.1 billion in 2021 as a result of faster export growth compared to import growth.

Crude oil, gold, and other export revenues drove an 18.2% year-over-year growth in total exports to US$17.4 billion. When compared to 2021, export revenues were $14.7 billion USD.

From a stock position of US$9.7 billion (equivalent to 4.4 months of import cover) at the end of December 2021, the stock of Gross International Reserves was at US$6.2 billion (corresponding to 2.7 months of import cover) at the end of December 2022.

The Net International Reserve position decreased from US$6.1 billion during the same comparison period to US$2.4 billion at that time.

Also Read: Petrol, diesel now sell at ¢15.25,¢15.90 per litre at pumps.

Source: HR Forum News

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