Africa Economy

Ghana’s central bank raises key interest rate to 22%

Ghana’s central bank held its interest rate at 14.5%, it said on Friday, as the country anticipates a negative economic impact from the spread of the coronavirus.

The Bank of Ghana has raised its benchmark interest rate by 300 basis points to 22 per cent in its latest effort to combat the country’s rising inflation.

The decision was taken Thursday at the central bank’s emergency meeting. The bank had in light of the increase in inflation in July and heightened pressures in the foreign exchange market called for the meeting to deliberate on the underlying drivers.

Headline inflation rose to 31.7 per cent in July, from 29.8 percent in June, the 11th consecutive month of increase. Food inflation rose to 32.3 per cent in July from 30.7 per cent in June 2022.

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“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.

The bank said executing the country’s budget for the year has remained challenging.

“Revenue has not kept pace with projections and created financing challenges. In the absence of access to the international capital market and given the constrained domestic financing, central bank overdraft has helped to close the financing gap as reflected in the mid-year budget review. The Bank of Ghana is working with the Ministry of Finance to agree on a cap on the overdraft,” it said.

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The bank said it intends to raise foreign exchange from the mining and oil firms to boost its forex reserves.

“To boost the supply of foreign exchange to the economy, the Bank of Ghana is working collaboratively with the 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.

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