Increase in policy rate to stifle economic growth

Increase in policy rate to stifle economic growth – Databank Research

A further tightening of the Monetary Policy Rate (MPR) of the Bank of Ghana could stifle economic growth, Databank Research has projected.

This is because liquidity levels are already tight on the interbank market

According to its Weekly Fixed Income Update, while it maintains an additional 200 basis hike in the policy rate in 2022, it expect the Monetary Policy Committee (MPC) to exercise restraint in May 2022, deferring a potential 100 basis points hike in MPR to July 2022.

Real returns on fixed-income securities are also depressed with the high inflation profile, continually undermining the Treasury’s financing operations.

We note that short-term interest rates are misaligned, resulting in negative real yields, which could prompt the MPC to act in the week ahead”, it however pointed out.

Ghana’s inflation continued the relentless run in April 2022, rising to 23.60% year-on-year as against 19.40% in March 2022.

Therefore, inflation has increased by 11% over 4 months in 2022, continuing the upward run since second half of 2021.

The first and second-round effects of petroleum and transport price hikes, elevated food prices and the lagged impact of exchange rate pass through are the main drivers of the April 2022 inflation rate. “We believe these cost-push pressures will persist until the third quarter”, the report stressed. Additionally, it noted that the implementation of the Electronic Transaction Levy from May 1st, 2022, and the impending hike in utility tariffs are further upside risks to inflation

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