Ghana's central bank maintained its monetary policy rate at 25.50 percent, saying the risks to inflation and growth are balanced, with the trend toward declining inflation considered positive.
Nevertheless, the Bank of Ghana (BOG), which cut its rate in November by 50 basis points in the first easing since July 2011, added it was concerned that inflation could be affected by the recent volatility in the exchange rate of the cedi, persistent increases in food prices and fiscal policy.
"There is therefore the need to return to the path of fiscal consolidation to complement the tight monetary policy stance to deliver on the medium term inflation target," the BOG said.
Although the conditions for economic growth are considered "modest," the central bank said prospects were positive, helped by improved oil and gas production from new fields, the gradual rebound in private sector credit and improved sentiment and expectations.
Ghana's headline inflation rate decelerated further to 15.4 percent in December, the lowest since July 2014, from 15.5 percent in November while the economy grew by an annual 4.0 percent in the third quarter of 2016, up from 2.3 percent in the second quarter.
While the decline in inflation was largely as BOG had expected, the central bank added that the underlying assumptions were revised to reflect the recent rise in ex-pump prices, exchange rate deprecation and the higher-than-budgeted fiscal deficit for 2016.
Despite continuous tightening of monetary policy since February 2012, Ghana's cedi fell sharply from early 2013 until mid-2015. Since then it has been more stable although volatility returned in the run-up to the December polls, with the cedi down by 9 percent in November last year.
Last year the cedi depreciated by 9.6 percent against the U.S. dollar, less than a 15.7 percent depreciation in 2015, the BOG said.
Today the cedi was trading at 4.35 to the U.S. dollar, down 1.6 percent this year.
Economic activity was modest last year due to tight monetary policy, power supply constraints and challenges at the Jubilee field. But the BOG said consumers are more optimistic following the polls and higher oil production from new fields should boost growth this year.
The International Monetary Fund has forecast that new fields should boost Ghana's oil output by some 50 percent, raising economic growth to 7.5 percent this year. It also expects inflation to ease to 10 percent in 2017.
The BOG said provisional data for the year to November indicated a budget deficit of 7.0 percent of Gross Domestic Product compared with a target of 4.7 percent, mainly due to lower revenues while government spending was broadly within target.
The Bank of Ghana issued the following statement:
1. Ladies and Gentlemen, welcome to the first MPC press
briefing for 2017. We have concluded our 74th regular MPC
meetings, and I present highlights of the deliberations and the
Committee’s decision on the Monetary Policy Rate.
2. Headline inflation continues to ease, closing the year at 15.4
percent from 15.8 percent in October 2016. This was
supported by tight monetary policy and relative stability of the
3. Similarly, underlying inflation pressures, measured by core
inflation (CPI excluding energy and utility prices) declined
significantly. From 15.2 percent in October, core inflation fell to
14.7 percent in November, and further to 14.6 percent in
December 2016. Also, inflation expectations by consumers
and the financial sector eased in line with trends in headline
4. These developments in headline inflation during the year were
broadly in line with the Bank’s 2016 forecasts. At this MPC
round, however, the underlying assumptions in the forecasting
framework were revised to reflect the recent upward
adjustments in ex-pump prices, exchange rate depreciation
and a higher than budgeted fiscal deficit outturn for 2016.
Consequently, the baseline forecast horizon for the medium
term inflation target has shifted into 2018. This inflation
outlook could however improve if the fiscal consolidation
process is restored, alongside monetary policy tightness and
exchange rate stability.
5. Economic activity remained modest throughout the year,
against the backdrop of policy tightness, oil and gas
production challenges at the Jubilee field, and lingering
consequences of the power supply constraints. The updated
CIEA to November 2016 points to some moderation in the
pace of economic activity reflecting declines in industrial
consumption of electricity, cement sales, tourist arrivals and
domestic VAT collection.
6. However, the latest consumer sentiments survey conducted
after the December 2016 polls reflected optimism about
economic prospects. In addition, the expected increase in oil
production from Tweneboa-Enyenra-Ntomme (TEN) and
coming on stream of the Sankofa-Gye Nyame oil fields are
expected to boost growth in 2017.
7. Provisional fiscal data for the year to November 2016
indicated a budget deficit of 7.0 percent of GDP, against a
target of 4.7 percent. The fiscal slippage was mainly attributed
to shortfalls in revenues. Government expenditures, on the
other hand, were broadly within target. The fiscal outturn for
2016 presents challenges to the inflation outlook.
8. At the global level, the recovery process continued at a
moderate pace underpinned by heightened policy
uncertainties regarding Brexit, volatility in commodity prices,
rebalancing in China, and the outturn of the US elections.
Nonetheless, economic activity is projected to improve on the
back of the pro-growth agenda of the new US administration
and some turnaround in commodity prices, especially crude
9. There are, however, underlying global risks which could
impact adversely on Ghana’s balance of payments, fiscal
operations and the inflation outlook. These include a stronger
US dollar and rising global bond yields, on the back of
expected hikes in the Fed funds rate.
10. For the first time since 2011, the provisional balance of
payments in 2016 recorded a surplus. This was attributed to a
narrowing of the current account deficit driven largely by
improvement in the trade balance. The improvement more
than compensated for the moderation in the capital and
financial accounts arising from lower official foreign inflows.
11. The foreign exchange market witnessed some volatilities in
the run-up to the December polls as demand pressures
mounted, but the pace of depreciation has since slowed down.
In 2016, the Ghana cedi recorded a cumulative depreciation of
9.6 percent against the US dollar, compared with 15.7 percent
in 2015. In the outlook, the tight monetary policy stance,
renewed confidence in the economy and improved balance of
payments outturn are expected to support stability in the
foreign exchange market.
12. In summary, the Committee viewed the declining trends
observed in headline inflation, core inflation and inflation
expectations as positive. Nonetheless, there are concerns
regarding the inflation outlook, which could be impacted by the
pass-through effects of the recent exchange rate volatility,
persistent increases in food inflation and the fiscal outturn.
There is therefore the need to return to the path of fiscal
consolidation to complement the tight monetary policy stance
to deliver on the medium term inflation target.
13. Although growth conditions remain modest, prospects are
positive, underpinned by improved oil and gas production from
the new oil fields, the gradual rebound in growth in private
sector credit and improved sentiments and expectations. In
the outlook, the risks to growth include policy uncertainties
especially in the global environment.
14. In concluding, the Committee viewed the risks to inflation and
growth as balanced and decided to maintain the Monetary
Policy Rate at 25.5 percent. The Committee will continue to
monitor developments and take any necessary action, if
required, to achieve the medium term inflation target."