The Emergency Monetary Policy Committee of the Bank of Ghana met on Wednesday, July 17, 2022, but Ken Ofori-Atta, Ghana’s finance minister, was not present.
The crisis conference is anticipated to pave the way for additional actions by the central bank to address the pressures now placed on the Ghana cedi as well as the growing inflation rate.
The Finance Minister has reportedly been in the US for some time, according to The Herald. While some have stated that he is recharging in the US, others have asserted that he is there for a checkup.
However, the timing of the emergency meeting coincides with Goldman Sachs’ prediction that the policy rate will increase by at least 200 basis points from its current level of 19 percent to 21 percent.
“We expect the MPC to announce a 200bp policy rate hike to 21% and see a considerable upside risk to our projection, given the degree of FX and domestic financing constraints,” the Economic Research Wing of Goldman Sachs said.
The Emergency Monetary Policy Committee Meeting will take place on Wednesday, August 17, according to a Monday announcement from the Bank of Ghana.
What might be the primary motivation for this gathering is still unknown. The MPC was initially scheduled to meet next month, from September 20 to 23, 2022, according to the Central Bank’s own timetable.
However, the BoG might be the explanation if it decides to take additional monetary measures to rein down the inflation rate. Others anticipate certain Foreign Currency Measures to stop the steep depreciation of the cedi.
When the Ghana cedi is falling, however, a source close to the Central Bank said that it is never wise to employ emergency foreign exchange measures, adding that “a similar action implemented in 2014 did not work.” This, the insider continued, might send the market the wrong signals.
The emergency meeting follows an increase of the Cedi’s rate of depreciation over the previous two weeks (nearly 10% vs. the USD), translating into a total cumulative year-to-date currency depreciation of 50%.
Inflation and financial stability risks brought on by this FX depreciation, along with the difficult domestic funding climate for the government, which has compelled the BoG to start monetizing the deficit, according to Goldman Sachs, are what have caused the need for this meeting.
However, based on their observations following their recent visit to Ghana, Goldman Sachs was concerned about the Ghanaian authorities’ commitment to an IMF programme.
“In our recent trip to Accra, one notable observation was the authorities’ perceived lack of urgency in concluding programme talks with the IMF (with locals expecting a 6-9 month timeframe), despite intensifying BoP, FX and fiscal financing pressures” it added in its advice to investors.
The Investment Banking Giant was, however, worried that the delay in reaching an IMF deal might not be good for the economy. “We have argued that a delayed conclusion creates the risk of further deficit monetization by the BoG,” it added.
The “Cedi depreciation and a drop in FX reserves, signaling that the macroeconomic outlook may deteriorate further in the short future” were another cause for concern.
The Bank of Ghana maintained the rate at 19 percent in its most recent meeting in July 2022, citing “deceleration” of the rate of inflation and worries about economic growth.
In an effort to slow the rate of inflation, the Bank of Ghana has raised the policy rate by about 550 basis points since the end of 2021.
The Governor, Dr Ernest Addison, during the MPC press conference indicated that the Central Bank was pausing to observe the impact on inflationary pressures of recent rate hikes and other policies, “noting that the bank had observed that inflation had persisted and broadened to almost all items in the consumer basket”.
The government at the last meeting also maintained that “the committee was of the view that it was appropriate to pause and observe the impact of the recent monetary measures already taken.”
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