The Central Bank has raised its monetary policy rate by 50 basis points to 30%.
This move comes as part of a cumulative 1,300 basis points (13%) increase in policy rate hikes by the Central Bank since November last year.
The decision to increase the policy rate was driven by a slight uptick in the country’s headline inflation rate, which rose from 42.2% in May to 42.5% at the end of June 2023. The Central Bank’s action aligns with the monetary policy tightening stance recommended by the International Monetary Fund (IMF) in the implementation of the ECF (Extended Credit Facility) program.
Due to the marginal increase in the policy rate, interest rates on loans to the private sector are expected to rise slightly, leading to additional costs for businesses in the country.
In announcing the new policy rate, the Governor of the Central Bank, Dr. Ernest Addison, highlighted the elevated risks to the inflation profile, driven by second-round effects of food prices. Despite eliminating central bank financing in the first six months of the year, inflation remained persistent at around 42% throughout the second quarter of 2023.
Dr. Addison emphasized the need for decisive tightening measures from both the fiscal and monetary sides to anchor inflation expectations on a declining path. The Monetary Policy Committee (MPC) has decided to increase the Monetary Policy Rate by 0.5 percent to 30 percent in response to these considerations.
The committee will closely monitor incoming inflation data and respond accordingly if inflation continues to persist.
Overall, the Central Bank’s move aims to manage inflationary pressures and stabilize the macroeconomic framework to ensure sustainable economic growth and stability.
