The Bank of Ghana (BoG) has issued a press release to update the public on the 114th Monetary Policy Committee (MPC) meetings which took place last week.
At the meeting, the Committee deliberated on recent global and domestic macroeconomic developments, assessed the performance of the economy, and the risks to the outlook for inflation.
The committee after the deliberations took the decision to maintain the policy rate at 30%.
This is after among other things, the Monetary Policy Committee observed the overall improving macroeconomic conditions with relatively strong economic growth and a drop in inflation in August.
These developments the MPC said provide evidence that the policy mix under the three-year IMF Extended Credit Facility is beginning to yield results.
“Given these considerations, the Committee decided to maintain the policy rate at 30.0 percent. The Committee further indicated that while the expectation is for continued disinflation, it stands ready to respond appropriately should inflation deviate from these broad expectations,” parts of the press release issued by Bank of Ghana’s Monetary Policy Committee dated Monday, September 25, said.
Below is a Summary and Outlook of the Monetary Policy Committee meeting.
21. In summary, the Committee noted the moderation in global economic activity, arising from the high inflation, tighter financing conditions, weak demand weighing down on manufacturing output, as well as the moderation in China’s recovery after the sharp rebound in the first quarter. The slowdown in global growth momentum is however concentrated in advanced economies with the Euro area a key downside risk, but emerging market and developing economies are expected to post some strong growth at 4.0 percent in 2023. Global inflation is expected to remain above central bank targets for an extended period due to strong labour markets and pass-through of energy price shocks. The disinflation process is projected to take longer than expected, requiring moderately tighter policies, while the growing uncertainty about the global growth outlook, could trigger repricing of risky assets, sharp tightening of financing conditions, and further strengthening of the US dollar. These could transmit to the domestic economy through the trade and financial channels.
22. On the domestic front, the Committee observed the overall improving macroeconomic conditions with relatively strong economic growth and a drop-in inflation in August. These developments provide evidence that the policy mix under the three-year IMF Extended Credit Facility is beginning to yield results. Economic activity is rebounding strongly, the exchange rate is stabilising, inflation is declining, and level of foreign exchange reserves has improved. Sustained improvement in these indicators should result in the restoration of real incomes and purchasing power.
23. The strong growth outturn observed in the first half of 2023 is expected to continue in the third quarter as indicated by the July 2023 update of the Bank’s CIEA. Also,
Ghana’s PMI lends support to the growth outlook, reflecting improving business conditions. The results from the confidence surveys so far also indicate continued improvement in business and consumer sentiments influenced by the relative stability in the Ghana cedi, and more recently the resumption of the disinflation process. The pick-up in confidence is expected to continue for the rest of the year in line with improving macroeconomic conditions.
24. On the implementation of fiscal policy, while policies remain consistent with the IMFsupported programme thus far, challenges associated with revenue mobilization persist and will require additional efforts to safeguard the revenue-led fiscal adjustment programme.
25. The country’s external sector position has continued to improve significantly in the first eight months of the year, supported by a current account surplus, reflecting higher gold export receipts, import compression, and lower outflows from the services and income accounts. The lower balance of payments deficit, the domestic gold purchase programme, as well as inflows from the mining sector and the liquidation of some short-term external liabilities contributed to rebuilding the country’s reserve buffers. In the last quarter of the year, reserve accumulation would be further bolstered by the expected inflows from the cocoa syndication loan, the second tranche of the IMF ECF programme, and other multilateral inflows.
26. On inflation dynamics, the continued maintenance of a tight monetary policy stance and relative exchange rate stability have contributed significantly to the disinflation process observed in the year thus far. Headline inflation has declined by a cumulative 14.0 percent since the peak of 54.1 percent recorded in December 2022. Non-food inflation has also declined sharply by close to 20 percent, broadly reflecting the effectiveness of monetary policy. All core inflation measures, monitored by the central bank are trending downwards, indicating continued easing of underlying inflationary pressures. In addition, one-year ahead survey-based inflation expectations seem well anchored.
27. While the disinflation process has resumed, which should result in a gradual return towards the target band over the medium-term barring unanticipated shocks, rising international crude oil prices and adjustments to utility tariffs remain a risk to the inflation outlook which would have to be managed through monetary policy vigilance.
28. Given these considerations, the Committee decided to maintain the policy rate at 30.0 percent. The Committee further indicated that while the expectation is for continued disinflation, it stands ready to respond appropriately should inflation deviate from these broad expectations.