Ghana's central bank raised its policy rate by a further 100 basis points to 26.0 percent due to "imminent upside risks to the inflation outlook," but held out the possibility of lowering the rate when inflationary expectations are well-anchored.
The Bank of Ghana, which has now raised its rate by 500 basis points this year, said its policy stance already remains tight but additional tightening was necessary to "re-anchor displaced inflation expectations" and together with the current fiscal consolation should help break the "high inflation inertia."
Without the additional policy tightening, inflation is likely to drift further away from the bank's target band of 8.0 percent, plus/minus 2 percentage points, and lengthen the forecast horizon into late 2017.
Ghana's inflation rate was steady at 17.4 percent in October and September, indicating some moderation in prices due to the tight policy stance, an appreciation of the cedi's exchange rate in July and a decline in international oil prices.
Nevertheless, the central bank underscored that inflation and inflation expectations were "far above" its target range and there are risks to the outlook from worsening external financial conditions and the planned increase in utility tariffs that are now likely to be higher than expected.
The cedi has been depreciating since early 2013 but firmed sharply in July. Since October it has been trading sideways and was quoted at 3.82 to the U.S. dollar today, down 16.5 percent since the start of the year.
Compared with the same period last year, the central bank said the cedi depreciated by 31.2 percent in the year to October.
The Bank of Ghana issued the following statement:
"1. Ladies and gentlemen, you are welcome to the last MPC press briefing
for 2015. We concluded our 67th regular meetings and I present the
policy decision arrived at and highlights of deliberations that informed
2. The Committee has decided to increase the policy rate from 25 to 26
3. The latest release by the Ghana Statistical Service (GSS) puts inflation
at 17.4 percent in October, same as in September and up from 17.3
percent in August. This indicates some moderation in price
movements over the past three months, supported by tight monetary
policy stance, the appreciation of the exchange rate in July as well as
falling international crude oil prices.
4. This notwithstanding, the current level of inflation and the latest
inflation expectations remain far above the medium term target band of
8±2 percent. Core inflation (CPI inflation excluding energy and utility
prices), which typifies underlying inflation, has also continued to rise
over the period. Also, there are imminent upside risks to the inflation
outlook such as worsening external financial conditions and the
planned utility tariff adjustments which are now likely to be higher than
anticipated during the last MPC.
5. On a year-to-date basis, the Ghana cedi depreciated by 15.5
percent as at October 2015 compared with 31.2 percent in the
corresponding period of 2014. Going forward, maintaining a tight
monetary policy stance will reinforce the relative stability in the foreign
exchange market and dampen risks related to the external financial
6. Assessments of current economic conditions show that though
monetary policy remains tight, some additional tightening is required to
re-anchor the displaced inflation expectations. This, together with the
on-going fiscal consolidation, is expected to break the high inflation
inertia. Our current forecasts show that without any additional policy
adjustment, inflation is likely to drift farther away from the target band
and lengthen the forecast horizon into late 2017.
7. The Bank’s Real Composite Index of Economic Activity (CIEA) for
September 2015 indicates a slower pace of growth compared with the
same period in 2014. However, in the medium term, growth conditions
are expected to recover, supported by a turnaround in the energy
situation, increased production of oil and gas and a general
improvement in the macroeconomic environment as inflation starts
8. Fiscal consolidation remains on track. For the first nine months
of the year the overall budget balance registered a cash deficit of 5.1
percent of GDP which is within the programme target of 5.7 percent.
Maintaining the fiscal consolidation efforts would complement the tight
monetary policy stance for the attainment of the medium term inflation target. This would, in turn, help create conditions for long term
9. Risks from the global environment have heightened, driven
mainly by slower growth prospects in China and other emerging
market economies. Also, commodity prices continue to decline amidst
tightening financial conditions. These have resulted in increased
depreciation of currencies ranging from 19 percent to about 48 percent
year-to-date in most commodity exporting countries. The transmission
of these risks presents clear threats to the balance of payments
10. For the first ten months of 2015, the overall balance of
payments position, as measured by the change in net international
reserves, worsened to a deficit of US$378 million, compared with a
surplus of US$181.6 million for the corresponding period of 2014. At
the end of October 2015, gross foreign assets stood at US$5.7 billion
(3.4 months of imports). The current account balance for the first nine
months recorded a deficit equivalent to 5.4 percent of GDP.
11. In summary, the Committee noted that overall, the risks to the
inflation outlook were on the upside, with a likelihood of a further drift
away from the medium term target, hence its decision on the monetary
policy rate. The Committee will continue to monitor developments in
the economy and take appropriate action if necessary, including the
possibility of lowering the policy rate once inflation expectations are
The next Monetary Policy Committee (MPC) meeting is scheduled for
Friday January 22, 2016. The meeting will conclude on Monday
January 25, 2016 with an announcement of the policy decision. "