The Monetary Policy Committee (MPC) of the Bank of Ghana on Monday maintained the policy rate at 30.0 per cent, citing lower inflation, a stable exchange rate and relatively strong economic growth.
Dr Ernest Addison, the Governor of the Central Bank, said the Committee observed the overall improving macroeconomic conditions with relatively strong economic growth and a drop-in inflation in August.
The Governor was speaking at a press briefing after the 114th MPC meetings in Accra during which the Committee deliberated on global and domestic macroeconomic developments, including the implementation of the IMF-supported Extended Credit Facility programme for the first six months of 2023 and assessed risks to the inflation outlook.
He said these developments provided evidence that the policy mix under the three-year IMF Extended Credit Facility was beginning to yield results.
The Governor said economic activity was rebounding strongly, the exchange rate was stabilising, inflation was declining, and the level of foreign exchange reserves had improved.
“Sustained improvement in these indicators should result in the restoration of real incomes and purchasing power,” he added.
He said the strong growth outturn observed in the first half of 2023 was expected to continue in the third quarter as indicated by the July 2023 update of the Bank’s CIEA.
Also, he said the country’s PMI lent support to the growth outlook, reflecting improving business conditions.
The Governor said the results from the confidence surveys so far also indicated 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,” he said.
Dr Addison said on the implementation of fiscal policy, while policies remained consistent with the IMF- supported programme thus far, challenges associated with revenue mobilization persist and would require additional efforts to safeguard the revenue-led fiscal adjustment programme.
He said the country’s external sector position had 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.
He said 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.
The Governor said in the last quarter of the year, reserve accumulation would be further bolstered by the expected inflows from the cocoa syndicated loan, the second tranche of the IMF ECF programme, and other multilateral inflows.
He said 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 per cent since the peak of 54.1 per cent recorded in December 2022 with non-food inflation has also declined sharply by close to 20 per cent, broadly reflecting the effectiveness of monetary policy.
He said all core inflation measures monitored by the central bank were trending downwards, indicating continued easing of underlying inflationary pressures and in addition, one-year ahead survey-based inflation expectations seem well anchored.
The Governor said while the disinflation process had 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.
The Committee also 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.
It said 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 per cent in 2023.
The Committee said global inflation was expected to remain above central bank targets for an extended period due to strong labour markets and pass-through of energy price shocks.
The Committee indicated that while the expectation is for continued disinflation, it was ready to respond appropriately should inflation deviate from these broad expectations.
