Businesses are likely to pay more for loans they take due to an increase in policy rate by the monetary policy committee of the Bank of Ghana.
The committee after its final review meeting on the state of the economy decided to hike the rate by 100 basis point from 25 to 26 percent.
“The Committee noted that overall, the risks to the inflation outlook were on the upside, with a likelihood of a further drift away from the medium term target, hence its decision on the monetary policy rate. The Committee will continue to monitor developments in the economy and take appropriate action if necessary, including the possibility of lowering the policy rate once inflation expectations are well-anchored.
“The latest release by the Ghana Statistical Service (GSS) puts inflation at 17.4 percent in October, same as in September and up from 17.3 percent in August. This indicates some moderation in price movements over the past three months, supported by tight monetary policy stance, the appreciation of the exchange rate in July as well as falling international crude oil prices,” the BoG’s statement said.
The policy rate is usually indicative of the rate commercial banks borrow from the Central Bank.
“Assessments of current economic conditions show that though monetary policy remains tight, some additional tightening is required to re-anchor the displaced inflation expectations. This, together with the on-going fiscal consolidation, is expected to break the high inflation inertia. Our current forecasts show that without any additional policy adjustment, inflation is likely to drift farther away from the target band and lengthen the forecast horizon into late 2017.”
The BoG statement further noted that, “Fiscal consolidation remains on track. For the first nine months of the year the overall budget balance registered a cash deficit of 5.1 percent of GDP which is within the programme target of 5.7 percent. Maintaining the fiscal consolidation efforts would complement the tight monetary policy stance for the attainment of the medium term inflation 3 target. This would, in turn, help create conditions for long term sustainable growth.”
By this latest action, the cost of doing business will also go up.