Ghana's central bank lowered its policy rate for the 10th time as it extended a 5-year monetary easing cycle, saying inflation is expected to hit its central target in June, but added it will not hesitate to act if necessary to "contain all potential pressures to the inflation outlook."
The Bank of Ghana (BOG) cut its monetary policy rate by 1 percentage point to 13.50 percent and has now cut it 10 times and by a total of 12.50 percentage points since November 2016.
The Bank of Ghana (BOG) cut its monetary policy rate by 1 percentage point to 13.50 percent and has now cut it 10 times and by a total of 12.50 percentage points since November 2016.
"Risks to the inflation outlook appear muted in the near-term, but pressures from mostly rents and transport fare, would require some monitoring to anchor inflation expectations," BOG said in a statement that was issued at the first in-person press conference in a year.
It was also the 100th meeting of the bank's monetary policy committee.
Last year BOG cut its rate in March by 150 basis points but until today the rate it had kept the rate steady, as the bank argued monetary restraint was necessary due to a growing budget deficit and rising inflation following the fiscal and monetary measures taken boost economic activity during the pandemic.
In addition to the March rate cut, BOG also lowered banks' reserve requirement and engaged in quantitative easing by purchasing government bonds that had been issued to finance the widening fiscal deficit due to the impact of lower oil prices, tax revenue amid stimulus measures.
Helped by tight monetary policy - rates had been raised 13.5 percentage points from February 2012 to November 2015 - Ghana's inflation rate had been decelerating steadily. From over 19 percent in early 2016 inflation had fallen below 8 percent - BOG's central target - early last year.
But the pandemic disrupted food supplies and drove up food prices, reversing the disinflationary process. Headline inflation jumped from 7.8 percent in March 2020 to 11.4 percent in July.
But BOG remained confident this rise in inflation was temporary as underlying pressures had remained stable and maintained that inflation would return to its target range by the second quarter of 2021.
In the first three months of the year inflation remained elevated and above the bank's target range but in April the rate finally returned to the target range, falling to 8.5 percent. BOG targets inflation of 8.0 percent, plus/minus 2 percentage points.
In addition to the March rate cut, BOG also lowered banks' reserve requirement and engaged in quantitative easing by purchasing government bonds that had been issued to finance the widening fiscal deficit due to the impact of lower oil prices, tax revenue amid stimulus measures.
Helped by tight monetary policy - rates had been raised 13.5 percentage points from February 2012 to November 2015 - Ghana's inflation rate had been decelerating steadily. From over 19 percent in early 2016 inflation had fallen below 8 percent - BOG's central target - early last year.
But the pandemic disrupted food supplies and drove up food prices, reversing the disinflationary process. Headline inflation jumped from 7.8 percent in March 2020 to 11.4 percent in July.
But BOG remained confident this rise in inflation was temporary as underlying pressures had remained stable and maintained that inflation would return to its target range by the second quarter of 2021.
In the first three months of the year inflation remained elevated and above the bank's target range but in April the rate finally returned to the target range, falling to 8.5 percent. BOG targets inflation of 8.0 percent, plus/minus 2 percentage points.
Today BOG said it now expects inflation to hit its 8.0 percent target in June and inflation is expected to remain within its target band in the third quarter as risks appear muted.
Underlying inflation remains subdued, BOG said, adding there is still sizable spare capacity and a significant slack in labour and product markets, providing some scope to maintain the accommodative monetary policy stance.
As countries worldwide, Ghana's economy took a severe hit from the pandemic, with output down 5.9 percent in the second quarter of last year and then down 3.2 percent in the third quarter.
But in the fourth quarter, economic activity began to rebound, with gross domestic product up by an annual 3.3 percent and for the full year output still remained positive though GDP growth eased to 0.4 percent from 6.5 percent in 2019.
But in the fourth quarter, economic activity began to rebound, with gross domestic product up by an annual 3.3 percent and for the full year output still remained positive though GDP growth eased to 0.4 percent from 6.5 percent in 2019.
BOG said its composite index of economic activity had risen an annual 26.8 percent in March compared with a contraction of 1.9 percent in the same month last year, driven by domestic consumption, construction activities, international trading and a resumption of industrial production and air travel.
"Ghana has managed very effectively the COVID-19 outbreak in the country," the International Monetary Fund (IMF) said May 12, adding the rollout of mass vaccines had been a breakthrough and around one million doses had already been administered by the end of May.
IMF added policy interventions were critical to safeguarding lives and paving the way for a rebound in economic activity, forecasting growth this year of 4.8 percent, driven by a rebound in mining and services.
"Ghana has managed very effectively the COVID-19 outbreak in the country," the International Monetary Fund (IMF) said May 12, adding the rollout of mass vaccines had been a breakthrough and around one million doses had already been administered by the end of May.
IMF added policy interventions were critical to safeguarding lives and paving the way for a rebound in economic activity, forecasting growth this year of 4.8 percent, driven by a rebound in mining and services.
Ghana's gross international reserves rose to US$10.990 billion at the end of April, up from $8.624 billion end December and BOG said the credit had risen 0.5 percent against the U.S. dollar in the year to April compared with a fall of 2.1 percent in the same 2020 period.
