Bank of Ghana maintains policy rate at 30%

The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has maintained the policy rate at 30 percent.

Governor of the Bank of Ghana Dr Ernest Addison, while addressing the 115th MPC press conference in Accra on Monday, November 27 stated that although inflation is dropping, it is still high, hence the decision to maintain the policy rate at 30 percent.

The Policy Rate is an interest rate that the central bank sets in order to influence the evolution of the main monetary variables in the economy like consumer prices, exchange rate or credit expansion, among others.

The Committee noted that tighter financing conditions, slower growth in the manufacturing and services sectors, and China’s slower recovery were exerting some moderating influence on global economic activity.

Earlier aggressive policy tightening by advanced economies central banks has contributed to the dampening of inflationary pressures with headline inflation decelerating in many of their economies.

This has led to a pause in the tightening cycle. But core inflation remains high and is declining slowly due to strong labour markets, Governor Addison said.

In the outlook, he added, central banks are expected to maintain policy rates at high levels for much longer periods to contain the still-elevated inflation levels relative to targets.

The prevailing higher policy rates, long-term bond yields, and renewed strength of the US dollar could continue to keep global financing conditions tight with consequences for Emerging Market and Developing Economies, he added.

Furthermore, rising geopolitical tensions are creating uncertainty about crude oil prices and full crystallization of this risk could undermine the disinflation process in many economies, including Ghana.

“On the domestic macroeconomic environment, the Committee observed the broad improvements in the economy, reflecting stable exchange rates, the sustained disinflation process, and increased accumulation of foreign exchange reserves. These developments reflect improvements in underlying policies, including fiscal consolidation, zero financing of the budget by the central bank, and relatively favourable external conditions. In the outlook, the improvements will be sustained by the continued maintenance of tight monetary conditions, sustained fiscal consolidation, and continued reserve accumulation
supported through the Gold for Reserves programme.

“On growth, domestic economic activity continues to recover evidenced by the steady improvement in the Bank’s high frequency economic indicators. The CIEA is recovering from negative territory and is likely to turn positive by year end, showing a more solid rebound in economic activities. Both business and consumer sentiments remain largely
stable. Private sector credit growth, however, remains dampened due to risk aversion by
banks amid tightened policy conditions and rising credit risk. With continued improvement in the macroeconomic conditions supported by declining inflation, credit conditions are expected to improve with a turnaround in credit extension to support growth.

“The external payment position is expected to improve, underpinned by continuous implementation of the IMF-supported programme, and the Gold for Reserves programme, among others. The early completion and settlement of favourable agreement terms with bilateral creditors and commercial bondholders will help boost confidence and trigger resource flows to the economy. The strong build up in reserves have provided cushion against external vulnerabilities, including the delay in the cocoa syndicated
loan. Reserve build-up will even be stronger by the end of the year on receipt of the cocoa
loan and disbursement of the IMF second tranche,” he said.

In the outlook, he added, sustained fiscal consolidation will be needed to place the economy firmly on the course of disinflation and economic growth.

“The implementation of the budget thus far has been strong reflecting the attainment of fiscal targets under the programme for the first review. The 2024 budget statement is also designed to reinforce the ongoing fiscal consolidation.

“Headline inflation has continued to decelerate in the past few months consistent
with forecasts. The latest Bank forecast indicates that the disinflation process is expected to continue, supported by the current tight monetary policy stance, relatively stable exchange rate, and base drift effects. All the core measures of inflation and inflation expectations are pointing downwards, and the Bank will remain vigilant on risks to the disinflation process.

“The Committee noted that although inflation is decelerating, it remains high relative
to target. Therefore, there is a need to keep the policy rate tighter-for-longer until inflation is firmly anchored on a downward trajectory towards the medium-term target. Given these
considerations, the Committee decided to maintain the monetary policy rate at 30 percent.”