After seeing Ghana’s inflation rate surge to 31.7% in July, the Bank of Ghana responded by hiking the benchmark interest rate by 300 basis points. In addition to the rate hike, the central bank said it will gradually raise banks’ primary reserve requirements. One expert has said President Nana Akufo-Addo must trim the size of his government.

Largest Benchmark Rate Hike Since 2002

In an attempt to tame the country’s runaway inflation rate, which topped 31.7% in July, the Ghanaian central bank hiked the benchmark interest rate by 300 basis points. Following the latest hike, which is the largest increase on record since 2002, Ghana’s benchmark interest rate is now 22 percent.

According to a Bloomberg report, the latest increase means Ghana’s benchmark rate has now risen by 550 basis points since November 2021. In addition to increasing the benchmark rate, the Bank of Ghana (BOG) revealed in its emergency monetary policy committee (MPC) press release that it plans gradually increase banks’ primary reserve requirement from 12 percent to 15 percent.

On the foreign exchange front, the BOG statement said measures to boost the inflow of foreign exchange will also be implemented. The statement explained:

To boost the supply of foreign exchange to the economy, the Bank of Ghana is working collaboratively with the mining firms, international oil companies, and their bankers to purchase all foreign exchange arising from the voluntary repatriation of export proceeds from mining, and oil and gas companies.

By taking these steps, the BOG said it hopes to strengthen its foreign exchange auctions.

President Nana Akufo-Addo Optimistic About Turning Around Ghana’s Economic Fortunes

Meanwhile, the country’s president, Nana Akufo-Addo, is quoted in a VOA report apportioning the blame for Ghana’s economic woes on the Covid-19 pandemic and the Ukraine-Russia war. According to the Ghanaian President, it is these factors that are causing difficulties not just for Ghanaians but for many people around the world.

However, despite these difficulties, Akufo-Addo suggested his government is up to the task at hand.

“We are determined to bring relief to the Ghanaian people. Other steps will be taken, in particular, to deal with the unacceptable depreciation of the cedi. Reining in inflation, by bringing down food prices, is a major preoccupation of the government, and this season’s emerging, successful harvest will assist us [to] achieve this objective, together with other policies,” the president is quoted explaining.

Reacting to the BOG’s announcement, Courage Kingsley Martey, an economist with Databank Research, is quoted in the VOA report stating that the steps taken by the central bank mean there are “going to be short-term consequences or tradeoffs.”

Another expert, Godfred Bokpin, a professor at the University of Ghana, said it was time for President Nana Akufo-Addo to demonstrate he can rein in spending by reducing the size of his government.

Register your email here to get a weekly update on African news sent to your inbox:

What are your thoughts on this story? Let us know what you think in the comments section below.