Ghana MPC hikes MPR by 50bps to 30%

The Bank of Ghana's Monetary Policy Committee has taken a decisive step by increasing the main interest rate by 50 basis points to 30 per cent. The move, announced at the end of their July meetings, aims to address the rising inflation that has persisted for the past two months. The decision comes as no surprise, given the significant impact of food inflation, utility tariff hikes, and tax increments that have been in effect since May 1. Additionally, uncertainties in the global oil market, driven by fluctuating prices and efforts by OPEC plus to regulate output, have contributed to the need for preemptive action. Courage Boti, an Economist at GCB Capital, shed light on the committee's rationale, emphasizing the potential risks that point towards upward pressure on inflation. While the recent growth data exceeded expectations, concerns loom over future economic outlooks. Boti highlighted challenges such as restricted fiscal space, minimal monetary support, and escalating interest rates that could impede economic activities. Despite a slight reduction in the contraction of economic indicators over the past few months, the overall trend remains negative. This raises questions about the sustainability of growth and the lack of stimuli to drive economic recovery. Boti expressed a divergent view from the Bank of Ghana's stance, suggesting that a tighter monetary policy alone may not be sufficient to curtail inflation. He advocated for a more comprehensive approach, including substantial fiscal measures to bolster the disinflation process. The Government's commitment to fiscal consolidation has limited room for interventions to stimulate growth, as mandated under current programs to curb deficit financing. Boti pointed out a significant revenue shortfall in the first half of the year, despite stringent expenditure cuts. He attributed part of the reduction in expenditure to interest savings from domestic debt restructuring and suspended external debt servicing. The effectiveness of these measures in aligning with the Government's spending targets remains a critical issue for Boti. Looking ahead to the upcoming media review, he emphasized the need for transparent evaluation of expenditure controls beyond interest savings to achieve the desired inflation outcomes. While monetary tightening serves as a tool to combat inflation, concerns linger over its potential stifling effect on industries and manufacturing sectors grappling with high interest rates. Boti stressed the importance of striking a balance between inflation control and fostering growth through credit facilitation. The diverging perspectives between experts and the central bank underscore the complex challenges facing Ghana's economic landscape, prompting a nuanced approach to address both inflationary pressures and growth imperatives.