The Bank of Ghana has maintained the monetary policy rate at 27%, citing persistent inflationary pressures, fueled by food price increases in 2024.
Despite an initial projection to achieve an inflation target of 18% by the end of 2024, inflation climbed to 23.8% in December, deviating significantly from expectations.
Addressing the media during the first Monetary Policy Committee (MPC) meeting of 2025, on Monday January 27, 2025 the Governor of the Bank of Ghana, Dr. Ernest Addison, attributed the elevated inflation profile to adverse climate conditions and systemic supply chain challenges.
“The inflation profile remains elevated, largely driven by food price movements, especially in the last quarter of the year.
“The climate-related factors including the dry spell in some parts of the food-growing regions of the country and the late onset of rains, negatively affected production, while supply chain weaknesses generally affected food prices,” Dr. Addison explained.
He noted that dry spells and the late onset of rains in critical food-growing regions negatively affected agricultural production. These climate-related disruptions were exacerbated by inefficiencies in supply chain systems, leading to higher food prices.
While food inflation surged, non-food inflation exhibited a steady decline in the last quarter, settling at 20.3% by the end of December 2024.
Target and Future Outlook
In 2024, inflation exhibited a fluctuating pattern, initially rising from 23.2% in December 2023 to 25.8% in March 2024, before declining to 20.4% in August. However, the momentum was short-lived, as inflation rebounded to 23.8% by December.
“This deviation from the target reflects underlying challenges,” Dr. Addison admitted, emphasising the importance of renewed fiscal consolidation efforts and sound economic policies. The 2025 budget statement, yet to be presented by the new administration, is expected to play a pivotal role in stabilising inflationary pressures.
Despite the setback, the Central Bank is optimistic about resuming the disinflation process. “The Bank’s latest inflation forecast shows a steady decline and return to the path of disinflation, with an extended time horizon of achieving the medium-term target of 8±2%,” Dr. Addison stated.
To curb inflationary pressures while sustaining economic growth, the MPC opted to maintain the monetary policy rate at 27%.
“This decision reflects the need to strike a balance between stabilising prices and fostering economic growth,” the governor explained.
Economic Growth amid Inflation
Despite inflationary pressures, Ghana’s economy demonstrated resilience in 2024, recording a 6.3% GDP growth for the first three quarters. This marks a significant improvement from the 2.6% growth recorded during the same period in 2023.
The strong economic performance was driven by robust growth in the industrial sector, particularly gold production – alongside construction, international trade and tourism activities.
“Improved macro-economic conditions are positively influencing the banking sector and broader economic activity,” Dr. Addison noted.
Banking Sector Resilience and Challenges
The banking sector remained profitable and liquid in 2024, with total assets growing by 33.8%. The Capital Adequacy Ratio (CAR) improved slightly to 14% in December, up from 13.9% in the previous year.
However, elevated credit risk persists, as evidenced by an increase in the Non-Performing Loans (NPLs) ratio to 21.8% from 20.6% in December 2023.
“Supervisory activities will be intensified to ensure banks continue addressing high NPLs, which pose potential risks to the stability of the industry,” Dr. Addison assured.
Currency Stability and External Factors
The Governor explained that the Ghanaian cedi experienced intermittent pressures in 2024 but appreciated in the last quarter due to several positive developments.
Commercial banks participation in the gold purchase program for foreign currency and progress in external debt restructuring has boosted investor confidence.
“By the end of the year, the cedi had depreciated by 19% against the US dollar, a marked improvement from the 24.8% depreciation recorded earlier in 2024,” he added.
Global and Domestic Influences on Inflation
He continued that inflation eased in 2024 as subdued crude oil prices and tight monetary policies helped central banks move closer to their targets.
However, the tight labour market and underlying inflationary pressures in the services sector remain concerns.
“On the domestic front, Ghana faced unique challenges. Climate-related factors and supply chain weaknesses were the primary drivers of food price inflation,” Dr. Addison explained.
The MPC emphasized the importance of fiscal consolidation, monetary discipline, and structural reforms in mitigating inflationary pressures and fostering sustainable economic growth.
The governor stressed, “While the inflation outturn for 2024 deviated from the target, the Bank remains committed to resuming the disinflation process, contingent on renewed efforts at fiscal consolidation and sound policy measures.”
The next MPC meeting is scheduled for March 25-28, 2025, with the policy decision announcement expected on March 31
