The Bank of Ghana has increased the policy rate from 12.5 percent to 13.5 percent. This represents an increase of 100 basis points by the Monetary Policy Committee which has been meeting to review the economy since Monday.

This is the first time the Bank of Ghana has increase its policy rate since the middle of last year. Governor , Kwesi Amissah-Arthur told journalists at a news conference, the increase was as a result of some unforeseen factors likely to impact government’s projections and threats to inflation.

“Specifically, the pace of executing the budget in terms of arrears clearance, including those relating to the migration to the SSSS, and the recently announced increase in the minimum wage may impose additional demand pressures” he noted.

“The rapid growth in imports in 2011 and the unusual surge in demand for foreign exchange during the last quarter of the year created a misalignment in Bank of Ghana’s foreign exchange cash flow. Initially, this led to a marginal depreciation in the interbank rate as banks searched for resources to meet their customers’ requirements.Further pressure was placed on the exchange rate when foreign investors sought early redemption of their investments on the domestic bond market.The situation was further aggravated in January 2012 by speculative activities of dealers and traders” he explained.

“The pass-through to inflation expectations of developments in the foreign exchange market is obvious. The Bank therefore intervened to calm the market and restore stability. Going forward, the situation will be monitored closely and the Bank is ready to take appropriate measures to stem potential threats to achieving the inflation target” Mr. Ammissah-Arthur continued.

“To contain future inflation pressures and realign interest rates in favour of domestic assets, it is necessary that monetary policy continues to be fine tuned to ensure that inflation expectations remain anchored to keep inflation within the target band” the Governor concluded.