Currency power

Ghana: Biggest interest hike in 20 years by Central Bank to slow rampant inflation

By Jaysim Hanspal

Posted on March 22, 2022 16:11

Ernest Addison, Governor of the Bank of Ghana talks during the bank’s Monetary Policy Committee new conference in Accra
Ernest Addison, Governor of the Bank of Ghana at the bank’s Monetary Policy Committee news conference in Accra, Ghana March 21, 2022. REUTERS/Cooper Inveen

Ghana’s Central Bank has raised its interest rates by 17%, in a move to slow rampant inflation, as the government tries to push citizens and companies to adopt the eCedi.

This year, Ghana’s cedi has lost roughly 20% of its value versus the dollar, as the pandemic and the ongoing conflict in Ukraine has exacerbated the country’s unstable currency situation.

Ghana imports nearly a quarter of its wheat from Russia and around 60% of its iron ore from Ukraine.

The hike is the biggest in 20 years, raising investor concerns and ongoing development projects within the country, whilst food and living costs are on the increase.

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The Central Bank will need to raise interest rates further this year unless a decline in the cedi is halted, said  Goldman Sachs Group Inc. and Absa Group Ltd. The implications of this will have a disastrous impact on ever-increasing living costs in the country.

Ghana’s currency is one of the worst-performing globally.

  • In 2014, the government sought help from the IMF after the cedi lost 40% of its value.
  • In June the Central Bank has attempted to strengthen its position by going digital with the eCedi, a digital currency that would be made available to those even without a bank account or internet access.

“It is important that the eCedi is implemented to complement and enhance the existing payment systems,” the bank said. “The various existing electronic and mobile payment solutions will therefore have to be interoperable with the eCedi to enable their utilization of the eCedi.”

Although the economy has taken a downturn, commercial banks’ made more money in the first two months of 2022, with profit before tax at GH¢1.3bn, compared to GH¢1.1bn in the same period last year.

The government, alongside finance minister Ken Ofori-Atta, is preparing to unveil measures this week aimed at supporting the cedi, ensuring expenditure discipline and supposedly providing relief to the economy.

The administration hopes that this investment will kickstart the economy and encourage foreign investment domestically.

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