The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has increased its policy rate from 29.5 percent to 30 percent. In the Committee’s assessment, it revealed that the risks to the inflation profile were judged to be elevated driven by the second round effects of food prices.
It is in this regard that the Committee advised that Ghana’s macroeconomic framework required decisive tightening from both the fiscal and monetary sides to anchor inflation expectations firmly on a declining path.
Addressing the media at a news conference in Accra yesterday, the Governor of the Bank of Ghana, Dr. Ernest Addison, indicated that regarding the Monetary Policy Consultation clause, inflation, as at June 2023, was within the target band, but after declining consistently between January to April, headline inflation increased in May and June on account of a variety of factors.
These factors, he said, included higher food prices, implementation of new tax measures, and utility tariff adjustments.
Mr. Addison indicated that overall inflation increased from 41.2 percent in April to 42.2 percent in May, and then further to 42.5 percent in June.
“Underlying measures of inflation have all ticked up in May 2023. While core inflation ticked up, businesses expectations of inflation remain flat at an elevated level. Although inflation is expected to decline in the near-term, baseline forecasts show a slightly higher elevated profile in the year ahead, which, if not contained, could embed in underlying inflationary pressures. It is important that policy responds appropriately and decisively to prevent these risks from becoming embedded and consequently derail the disinflation process,” he asserted.
He further noted that inflation had persistently hovered around 42 percent throughout the second quarter of 2023 even though central bank financing has been eliminated in the first six months of the year.
“Global financing conditions remain tight in both advanced and emerging market economies, reflecting the pass-through effects of aggressive monetary policy tightening on bank funding costs and credit conditions,” the Governor said.
Subsequently, the committee reinstated that headline inflation has continued on a downward trend across many countries, responding to tighter and coordinated monetary policy, easing energy and food prices, and reduced supply bottlenecks, although core inflation has been more persistent amid cost pressures in labour markets.
On the domestic front, he said the country’s external sector position improved significantly in the first half year, bolstered by current account surplus, reflecting higher gold receipts, import compression and lower investment income payments.
As a result, the external sector performance, the domestic gold purchase programme, along with increased voluntary repatriation by the mining sector and the liquidation of some short-term external liabilities led to some sizable accumulation of external buffers.
He continued that the real sector conditions improved somewhat with higher GDP growth recorded in the first half year and the Composite Index of Economic Activity (CIEA) in May also showed some gradual recovery, though the Index remained in negative territory.
This, he said the results from the confidence surveys showed some slight softening in consumer sentiments, while business sentiments remained broadly stable.
Real private sector credit, Dr. Ernest Addison said had come under pressure on the back of tighter lending conditions, banks’ impaired balance sheets, elevated credit risk, and observed slowdown in credit demand due to the lingering effects of the macroeconomic downturn from last year.
“Meanwhile, banks’ half year performance in 2023 shows considerable growth in profits, following significant losses posted in 2022 on account of the DDEP. If this trend continues, we expect banks to rebuild capital buffers quickly in addition to equity capital injections by shareholders to give a further boost to real sector growth and to build resilience of the banking sector,” the Governor of BoG made known.
