Ghana raises policy rate to 19% in May

The Bank of Ghana Monetary Policy Committee recently announced a significant increase in the policy rate, raising it by 200 basis points from 17 per cent to 19 per cent. This decision comes in response to the country's mounting inflation, which reached an 18-year high at 23.6 per cent year-on-year in April. John Gatsi, Dean of the School of Business at the University of Cape Coast in Ghana, shared insights on this development in an interview with CNBC Africa. Gatsi highlighted the economic indicators that influenced the rate hike, emphasizing the high inflation levels and the potential for further increases in the future due to ongoing events. He pointed out that Ghana's fiscal situation is challenging, with rising debt levels and interest complications contributing to the need for a tighter monetary policy. The recent rate hike is seen as a step towards addressing these underlying economic concerns, particularly regarding inflation. Gatsi also discussed the potential implications of the rate hike on interest rates, expecting lending rates to follow the upward trend. As a result, businesses and households may face increased costs, adding pressure to an already strained financial environment. The Dean raised concerns about the alignment between fiscal and monetary policies in Ghana, noting a possible misdiagnosis of the inflation drivers. He suggested that a more accurate diagnosis is essential to effectively manage inflation and interest rates. Gatsi cautioned that the current approach of raising the policy rate may not address the root causes of inflation, particularly in food prices and imported inflation. He called for a reevaluation of the policy decision to ensure a more targeted and effective response to the inflationary pressures in the country. Overall, the interview with John Gatsi shed light on the complex economic challenges facing Ghana and the importance of a nuanced approach to monetary policy in addressing inflation and promoting sustainable economic growth.