The Bank of Ghana has projected headline inflation to return to the target band in the second quarter of the year. The Bank, however, indicated that the risks to inflation in the near-term are broadly balanced, despite some emerging short-term pressures. These pressures, according to the Bank, emanated from the rising crude oil prices. Also, the Bank cited the direct and secondary price effects of the revenue measures announced in the 2021 budget as a key risk.
The Monetary Policy Committee (MPC) of the Bank of Ghana announced this after it concluded its 99th MPC meetings on Monday, March 22, 2021. The Bank, however, promised that monetary policy will remain vigilant to monitor these risks.
Inflationary trends
Meanwhile, the Bank of Ghana noted that inflation remained above pre-pandemic levels. It added that the price developments in the first two months of 2021 were broadly mixed. Headline inflation eased from 10.4 percent in December 2020 to 9.9 percent in January 2021. It subsequently went up to 10.3 percent in February. This is marginally outside the medium-term target band of 8±2 percent.
The Bank attributed the uptick in inflation in February to non-food inflation, which rose to 8.8 percent from 7.7 percent in January. Food inflation, on the other hand, eased to 12.3 percent from 12.8 percent over the same comparative period. The bank, however, warned that inflationary pressures remain.
Also, the Bank of Ghana noted that inflation expectations of businesses inched up in February. But both consumer and financial sector inflation expectations declined.
Banking sector overview
For the moment, the Bank noted that the banking sector remains well-positioned to continue to play its financial intermediation role. The bank of Ghana also expressed optimism that the banking sector remains robust to support the ongoing recovery process. target band target band target band
“Banks are projected to sustain the strong performance under mild to moderate stress conditions”.
The Bank of Ghana further noted that some of the regulatory reliefs extended to the industry have helped banks’ continued support of the real sector. The Central Bank has called for close monitoring and heightened supervision to address potential vulnerabilities in the industry. This is because the effects of the pandemic still linger.
The bank of Ghana expects the recent rollout of the vaccination program to further add a boost to the anticipated recovery in growth. It noted that its high-frequency indicators have continued to pick up, reflecting the rebound in economic activity. However, business and consumer sentiments weakened on the back of the surge in COVID cases in the early months of 2021.
Policy rate
Meanwhile, the bank of Ghana has maintained the policy at 14.5 percent after a review of the recent activities of the economy. The policy rate has remained at this rate since March 2020. The Bank of Ghana reduced its policy rate to 14.5% as part of its policy measures to cushion the economy against the impact of the pandemic.
Risks to the 2021 budget
According to the Bank of Ghana, one of the main risks to the budget is achieving the enhanced revenue targets. The Bank also cited the heavy reliance on the domestic market as another major risk to the budget.
“The 2021 budget has set fiscal policy on an adjustment path albeit slower than originally anticipated. The adjustment for 2021 is expected to be driven, mainly by revenue-enhancing measures. And to a lesser extent, expenditure rationalization due to the need to continue the stimulus program”.
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