Just as was widely suspected, the Bank of Ghana has chosen to keep its benchmark Monetary Policy Rate at 14.5 percent for the next two months. The Governor of the BoG who doubles as the chairman of its Monetary Policy Committee, Dr Ernest Addison, announced the decision yesterday at an eagerly anticipated press briefing.
The Bank maintains that growth will perform better than earlier projected but the MPC noted that the expansionary fiscal stance to address the COVID-19 pandemic has also led to deviation from the path of fiscal consolidation. “Looking ahead to 2021, a decisive fiscal correction plan would be needed to contain fiscal risks in the medium-term,” warned Dr Addison The Committee however also noted that inflation has eased following the spike to11.4 percent. “At 10.1 percent for October 2020, inflation is almost at the upper band target. The fiscal and monetary policy measures, which have increased liquidity in the economy, appear not to be impacting inflation, partly due to the existence of the output gap” the BoG Governor noted “As a result, the Committee expects these conditions to support inflation to return to its central path (meaning eight per cent) by the second quarter of 2021.
Overall the Committee noted that macroeconomic conditions have generally improved relative to conditions at the time of the last MPC meeting in September 2020. Global conditions continue to be supportive, domestic inflation is easing, growth prospects are improving, crude oil prices have stabilized, monetary aggregates have expanded but with minimal impact on inflation, the current account deficit is stable, remittances inflow has remained firm, the exchange rate has been stable and reserve buffers continue to remain strong. The key risks are the evolution of the budget deficit to a record high of 11.4 percent and the financing needs to support budget implementation and the uncertainty surrounding the pandemic which appears to be resurgent under a second wave. Indeed, Dr Addison points to government’s fiscal deficit financing needs as the reason why long-term interest rates have been allowed to rise despite falling inflation, the reduction in reliance on foreign investors for patronage of such long tenured and the cedi’s stability which has removed the need for interest rate premiums to compensate for foreign exchange losses.
With worries about the fiscal deficit’s possible effects on inflation and the cedi’s exchange rate stability balancing out the need for further monetary easing to support Ghana’s economic rebound – which itself is coming under threat from a resurgence in active confirmed cases of COVID 19 – the BoG has decided on a prudent conservatism by playing safe, which has taken form in the retention of the MPC at 14.5 percent
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