Ghana makes the biggest interest rate hike ever at emergency meeting

At an emergency meeting on Wednesday, the Bank of Ghana raised interest rates by 300 basis points to 22%, its biggest rate hike ever, in the face of the economy's rapidly deteriorating inflation.

The hike came just three weeks after it kept its monetary policy rate steady at 19% and said it was taking a break to observe the impact of a series of record hikes. It was expected to meet again at the end of September, but on Monday said an emergency meeting was needed. Ghana's currency, the cedi, continued its sharp decline since the monetary policy meeting in July, losing more than 6% against the dollar on Wednesday alone, according to Refinitiv Eikon data. This brings total losses for 2022 to close to 39%. Meanwhile, consumer inflation rose to 31.7% year-on-year in July, the highest since late 2003, and the government's top statistician warned that it was impossible to tell whether inflation had peaked. These conditions have led to street demonstrations against economic hardship. In Ghana's capital Accra last month, hundreds of demonstrators protested against fuel price hikes, a tax on electronic payments and other fees. "The Monetary Policy Committee of the Bank of Ghana noted the rise in inflation in July and increasing pressures in the foreign exchange market," the Bank of Ghana's Monetary Policy Committee said in a statement. "Taking into account the risks to the inflation outlook, the Committee decided on a 300 basis point hike," the statement said, adding that banks' reserve requirements will be raised gradually from 12% to 15%. The committee blamed external factors such as the strong dollar and tighter global financial conditions for Ghana's current economic woes. Revenue generation has been a challenge for the government this year and without access to international capital markets, central bank lending has helped fill the gap, the committee said. Ghana is in the early stages of negotiating a support agreement with the International Monetary Fund after initially saying it would not turn to the fund for help. Razia Khan, chief economist for Africa and the Middle East at Standard Chartered (OTC:SCBFF), said Friday's hike could help show that Ghana is committed to reaching a deal with the IMF. "While a higher policy rate alone may not be enough to stabilize the currency in the very near term, it will at least provide reassurance on the seriousness of Ghana's negotiations with the IMF," Khan said.