The Bank of Ghana, which raised its rate by 500 basis points in 2015, said its inflation forecast horizon had remained broadly unchanged for inflation to return to its medium term target of 8.0 percent, plus/minus 2 percentage points, in early 2017, barring any shocks.
Ghana's headline inflation rate rose to 17.7 percent in December from 17.6 percent in November, but the central bank said this indicated "some moderation in price movements" due to its tight policy stance and ongoing fiscal consolidation.
"Going forward, the Committee expects the slower pace of price changes to continue and steer inflation down towards the medium target band," the central bank said.
Upside risks to inflation come from second round effects of changes to petroleum prices, exchange rate developments and a worsening of external financing conditions. These risks, however, are moderated by lower crude oil prices and an improvement in the energy situation.
The central bank noted that its rate increases in September and November had taken into account the large adjustments in water and electricity rates in December 2015 as part of Ghana's program with the International Monetary Fund (IMF) and the transmission of these changes were still working their way through the system.
Ghana's cedi has been depreciating since early 2013 and in 2015 it fell by 15.7 percent, down from a 31.3 percent depreciation in 2014.
But since the last meeting of the bank's monetary policy committee in November, the cedi has been more stable, supported by the bank's rate hikes, tight fiscal policy, inflows form donors, the pre-export finance facility for cocoa and proceeds from a Eurobond issue.
The cedi was trading at 3.96 to the U.S. dollar today, down from 3.81 at the start of the year.
The Bank of Ghana issued the following statement:
Ladies and gentlemen of the Press, welcome to the first MPC Press briefing in
2016. We concluded our 68th regular Monetary Policy Committee (MPC)
meetings and I present to you the Committee’s decision and highlights of the
The Committee has decided to maintain the policy rate at 26 percent.
The latest release by the Ghana Statistical Service (GSS) puts inflation at 17.7
percent in December 2015, up marginally from 17.6 in November and 17.4
percent in October. This indicates some moderation in price movements over the
previous month. The slower pace of inflation reflects the tight monetary policy
stance and the ongoing fiscal consolidation. In addition, our latest survey shows
that inflation expectations have broadly moderated.
Core inflation (CPI inflation excluding energy and utility prices), which reflects
underlying inflation, has continued to rise, albeit at a slower pace. Going forward,
the Committee expects the slower pace of price changes to continue and steer
inflation down towards the medium target band of 8±2 percent. However, there
are upside risks to the inflation outlook which include uncertainties regarding the
second round effects of the unanticipated petroleum price adjustments,
exchange rate developments as well as worsening external financing conditions.
These risks would however be moderated by lower crude oil prices, and
improvements in the energy situation.
The Bank’s Composite Index of Economic Activity (CIEA) for November 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 sustained improvement in the energy situation, anticipated increased production of oil and gas and a general improvement in the macroeconomic environment. These notwithstanding, there are risks to the growth outlook. These include, continuing tightness in the monetary and fiscal policy stance, weak consumer confidence, falling commodity prices and a slack in global growth.
Fiscal consolidation remains on track. For the first eleven months of the year, the
budget recorded a cash deficit of 5.6 percent of GDP against a target of 6.8
percent. Sustaining 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 sustainable growth.
Risks from the global environment remain heightened, driven mainly by slower
growth prospects in China and other emerging market economies. The outlook
for the commodities market shows that prices are unlikely to recover in the near
term. Also, the Fed’s start of gradual normalization of monetary policy has
contributed to tightening financial conditions and the transmission of these risks
presents threats to the balance of payments and fiscal outlook.
Since the last MPC meeting, the foreign exchange market has been relatively
stable, supported by the tight monetary and fiscal policy stance, inflows from
donors, the pre-export finance facility for cocoa and proceeds from the Eurobond
issue. In 2015, the Ghana cedi depreciated by 15.7 percent compared with 31.3
percent recorded in 2014. Maintaining the tight policy stance, smoothening the
supply of foreign exchange and enforcing the repartriation of export proceeds
into the banking system, in line with the Foreign Exchange Act, are expected to
moderate the seasonal volatilities usually experienced in the first half of the year.
In assessing the economic conditions, the Committee noted that the policy tightening in the September and November meetings took into account the expected increases in utility prices and the normalization of monetary policy in the US. It further observed that the transmission of these impulses are still working through the system.10.Notwithstanding the unanticipated adjustment in petroleum prices and its possible pass through effects, our inflation forecast horizon remains broadly unchanged for the delivery of the medium term target of 8±2 percent in early 2017, barring any further unanticipated shocks. The Committee therefore concluded that the current tight monetary policy stance, supported by continued fiscal consolidation and improvement in the energy situation, would provide the necessary impetus to rein in inflation pressures.11.In the light of this assessment, the Committee sees the risks to inflation and growth as balanced, and therefore decided to maintain the monetary policy rate at 26 percent. The Committee wishes to reiterate that it stands by its price stability mandate and will continue to monitor developments in the economy and take appropriate actions, if necessary. "
- Fiscal consolidation remains on track. For the first eleven months of the year, the budget recorded a cash deficit of 5.6 percent of GDP against a target of 6.8 percent. Sustaining 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 sustainable growth.