In its latest effort to combat the country’s rising inflation, the Bank of Ghana increased its benchmark interest rate by 300 basis points to 22%.
The decision was made during the central bank’s emergency meeting on Thursday. The meeting was called by the bank in response to an increase in inflation in July and increased pressures in the foreign exchange market.
Headline inflation rose to 31.7 percent in July, up from 29.8 percent in June, for the 11th month in a row. Food inflation increased to 32.3 percent in July, up from 30.7 percent in June 2022.
“The Ghana Cedi has depreciated by 25.5 percent year to date, reflecting the Ghana specific situation, including the challenging financing of the budget from both domestic and external sources, downgrading of sovereign credit rating, nonresidents disinvestment in local currency bonds, and loss of reserve buffers,” the bank said.
According to the bank, executing the country’s budget for the year has remained difficult.
“Revenue has lagged behind projections, posing financing challenges.” In the absence of access to the international capital market and given the limited domestic financing available, central bank overdrafts have assisted in closing the financing gap, as reflected in the mid-year budget review. “The Bank of Ghana is collaborating with the Ministry of Finance to agree on an overdraft cap,” it said.
The bank stated that it intends to raise foreign exchange from mining and oil companies in order to increase its forex reserves.
“To increase the supply of foreign exchange in the economy, the Bank of Ghana is collaborating with mining firms, international oil companies, and their bankers to purchase all foreign exchange arising from the voluntary repatriation of export proceeds from mining and oil and gas companies.” This will strengthen the central bank’s foreign exchange auctions,” it said.
