The Monetary Policy Committee of the Bank of Ghana on Monday, July 24, 2023 has increased the policy rate by 50 basis points to 30 per cent, citing risks to inflation.

Dr Ernest Addison, the Governor of the Central Bank said in the Committee’s assessment that inflation risk profile remains elevated, driven by the second round effects of food prices.

The Governor was speaking at a press briefing after the 113th Monetary Policy Committee (MPC) meetings which started last week from Wednesday, July 19, 2023. The Committee deliberated on global macroeconomic and recent domestic macroeconomic developments including the implementation of the IMF-supported Extended Credit Facility programme for the first six months of 2023 and assessed risks to the inflation outlook.

Dr Ernest Addison noted that even though Central Bank’s financing has been eliminated in the first six months of the year, Ghana’s macroeconomic framework requires decisive tightening from both the fiscal and monetary side to anchor inflation expectations firmly on the decline.

The Governor iterated that given these considerations and under the current circumstances, the Committee has decided to increase the Monetary policy rate by 0.5 per cent to 30 per cent. He noted that the global headline inflation continues to ease in many countries although remaining elevated at historically high levels.

Dr Addison explained that the ease has been driven by the effects of tighter monetary policy, lower energy and food prices and impact of reduced supply bottlenecks. The Governor said the core inflation has, however, proven somewhat more persistent amid cost pressures and resilient labour markets.

“Despite production cuts by some OPEC+ members, oil prices remain subdued amidst the uncertain global conditions, meanwhile, most survey-based indicators of longer-term inflation expectations remain anchored at around 2 percent for Advanced Economies.”
Dr Ernest Addison

Headline Inflation Inches Up for Second Consecutive Month

On the domestic front, Dr Addison indicated that headline inflation inched up for the second consecutive month on the back of strong food price pressures. However, he said relative exchange rate stability, stable ex-pump petroleum prices, and effective liquidity management by the Bank of Ghana are exerting a moderating influence on non-food prices.

Dr Addison noted that the two price readings since the May MPC meeting saw headline inflation rising to 42.5 per cent in June 2023, from 42.2 per cent in May 2023. The uptick was driven mainly by food inflation which went up to 54.2 per cent in June 2023 from 51.8 per cent in May, while non-food inflation declined to 33.4 per cent from 34.6 per cent over the same period, he highlighted.

The BoG Governor stated that in a similar direction, underlying inflationary pressures also picked up slightly for the second consecutive month since April 2023. He said all the Bank’s core inflation measures rose in the last two months. Core inflation excluding energy and utility prices, increased to 43.5 per cent in June 2023, from 42.8 per cent in May 2023.

The Governor averred that business and consumer inflation expectations similarly inched up while inflation expectations from the financial sector remained flat. He added that in the year to May 2023, the Bank’s high-frequency real sector indicators all showed signs of recovery in economic activity, albeit at a slower pace. He said banks’ half-year performance in 2023 also shows considerable profit growth, following significant losses posted in 2022 on account of the DDEP.

Dr Addison opined that if this trend continues, “we expect banks to rebuild capital buffers quickly in addition to equity capital injections by shareholders to give a further boost to real sector growth and to build resilience of the banking sector.”

The Governor added saying, “Early operationalisation of the Ghana Financial Stability Fund should also help provide additional recapitalisation support for eligible banks in line with the criteria and governance framework agreed with the IMF and the World Bank”.