Ghana's central bank left its policy rate steady at 26.0 percent, saying there is need "to maintain the current monetary policy stance which together with fiscal consolidation would help bring inflation further down."
The Bank of Ghana, which raised its rate by 500 basis points in 2015 to curb inflation from a rapid depreciation of the cedi's exchange rate, added that the risks to the outlook for inflation and economic growth were considered to be balanced.
Ghana's inflation rate eased to 18.5 percent in February from 19 percent in January, pulled down by lower non-food inflation and a more stable exchange rate in recent months. Core inflation, which excludes energy and utilities, has been trending downward since December.
The central bank expects inflation to peak in the first quarter and then slowly decelerate towards its target band by mid-2017, the same forecast as in January.
The central bank, which targets inflation of 8.0 percent, plus/minus 2 percentage points, added that upside risks to the outlook come from second round effects of higher transportation costs and tight external financing conditions.
Inflation expectations remain high, the bank said, driving up by higher utility tariffs and petroleum prices but "there is no clear evidence of a further deterioration in inflation expectations in the near term."
Since August last year, the exchange of the cedi has been relatively stable, reflecting the bank's rate hikes, improved liquidity on the foreign exchange market and renewed investor interest in debt instruments, the bank said.
As of March 17, the cedi was down 1.4 percent this year against the U.S. dollar compared with a depreciation of 11.2 percent in the same period last year. The cedi was quoted around 3.85 to the dollar today as compared with 3.815 at the start of the year.
The process of cutting the government budget deficit remains on track, the bank said, adding that preliminary data shows a deficit of 7.1 percent of Gross Domestic Product in 2015 compared with a deficit of 10.2 percent in 2014.
"Continued commitment to the budget implementation coupled with the tight monetary policy stance is expected to offset some of the inflation pressures through weaker aggregate demand," the central bank said, adding that changes in crude oil prices and tight external financial may pose risks to the budget in terms of lower oil revenue and financing of the deficit.
The Bank of Ghana issued the following statement:
"1. Ladies and gentlemen of the Press, welcome to this MPC Press briefing. We
have concluded our 69
th regular Monetary Policy Committee (MPC) meetings
and I present to you the Committee’s decision and highlights of the
2. The Committee has decided to maintain the monetary policy rate at 26
3. Price developments, since the January MPC meetings, show that headline
inflation moved up significantly to 19 percent in January 2016 from 17.7 percent
in December 2015. This was due to the impact of the hikes in utility tariffs and
levies on petroleum products. In February, however, headline inflation declined
to 18.5 percent, dragged down by lower non-food inflation. The monthly inflation
rates also indicated some slowdown in February, supported largely by stability in
the exchange rate.
4. Core inflation (CPI inflation excluding energy and utility prices) has trended
downwards since December 2015, pointing to some easing of underlying
inflation pressures. The drop in both headline and core inflation is encouraging,
but the current levels of inflation remain significantly above the medium term
target band of 8±2 percent.
5. The latest survey of businesses, consumers and the financial sector show that
inflation expectations are still high, driven largely by the upward adjustments in
utility tariffs and petroleum prices. Although elevated, there is no clear evidence
of a further deterioration in inflation expectations in the near term.
6. Our forecasts indicate that, barring any further shocks, inflation will peak in the
first quarter of 2016, and gradually decline thereafter towards the target band by
mid-2017, same as our January forecast. The upside risks to the inflation
outlook include uncertainties regarding the second round effects of the upward
adjustment of the transportation costs and the tight external financing
7. The January 2016 update of the Bank’s Composite Index of Economic Activity
(CIEA) points to some improvement in the pace of economic activity. Also, the
latest confidence surveys show that both consumer and business sentiments on
general economic conditions are somewhat positive. Despite the modest pickup
in the CIEA, general growth conditions remain subdued reflecting the tight policy
stance, declining private sector credit growth and lingering concerns about the
energy crisis. It is anticipated that the turnaround in the energy situation,
additional oil and gas production and improvement in the macroeconomic
environment would further boost growth later in the year.
8. Fiscal consolidation continued to be on track. Provisional data on the fiscal
outturn for 2015 showed a significant contraction of the deficit to 7.1 percent of
GDP compared to 10.2 percent in 2014. Continued commitment to the budget
implementation coupled with the tight monetary policy stance is expected to
offset some of the inflation pressures through weaker aggregate demand.
However, uncertainties regarding movements of crude oil prices and tight
external financing conditions may pose significant risks to the budget in terms of
lower oil revenues as well as financing of the fiscal deficit.
9. The provisional current account deficit in 2015 improved to 7.8 percent of GDP,
relative to 9.5 percent in 2014. This favourable development was attributed to an
improvement in the services account which outweighed the worsening trade
deficit as commodity prices softened. Gross Foreign Assets as at end February
was US$5.4 billion, equivalent to 3.1 months of import cover.
10.The global environment continues to be plagued by uncertainties as growth
prospects weaken in the advanced and major emerging market economies.
This, in turn, has slowed global demand, resulting in volatilities in the
commodities and financial markets amid tightened financing conditions,
although the trend has reversed recently. The transmission of risks emanating
from these developments has implications for both the fiscal and balance of
11.Since August 2015, the local currency has been relatively stable, reflecting the
tight policy stance, improved liquidity on the foreign exchange market and the
renewed investor interest in domestic debt instruments. As at March 17th
Ghana cedi had depreciated by 1.4 percent compared with a depreciation of
11.2 percent in the same period last year. The Bank will continue to use
appropriate measures to reduce exchange rate volatilities to support the
12.In assessing the current economic conditions, the Committee views the risks to
inflation and growth outlook as balanced. Hence, there is the need to maintain
the current monetary policy stance which together with fiscal consolidation
would help bring inflation further down.
13.The Committee therefore decided to maintain the policy rate and wishes to
reiterate its price stability mandate. The Committee will continue to monitor
developments in the economy and take further actions, if necessary, to ensure
the attainment of its target within the forecast horizon. "