The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has decided to maintain the policy rate at 19.0 percent at a press conference held today, Monday, July 25, 2022 to climax its 107th MPC meetings which took place last week.

The Committee noted that it expects that the macroeconomic framework that will underpin an agreed IMF-supported program will present a stronger coordinated monetary and fiscal policy framework that will anchor stability and prevent a wage-price spiral, which will lead to inflation becoming more entrenched.

Overall, the Committee noted the significantly more challenging global context as the global economy is expected to experience sharp deceleration. Amid higher commodity prices and supply disruptions, inflation has surged across most countries.

The Committee noted that akin to the slowdown in global growth, domestic growth is moderating, as high inflation, supply bottlenecks, and exchange rate uncertainty act as a drag on economic activity.

The softening of business and consumer confidence since the last quarter of 2021 and the measured CIEA growth are providing evidence of this slowdown. The Committee noted the technical staff projection that GDP growth will likely slow down to within 3.7- 4.5 percent from the projection of 5.8 percent for 2022.

The banking sector continues to exhibit strong performance, in the face of challenging headwinds from the macroeconomic environment. The financial sector indicators remain healthy, with some improvement in asset quality reflected in the lower NPL ratios compared with April 2022.

However, the recent developments in the macro economy may pose some upside risks to the sector’s outlook and will require strong risk management by the industry and effective supervision.

Budget execution

The Committee highlighted that the execution of the budget has been challenging against the backdrop of macroeconomic developments.

“For the first five months of the year, available provisional data shows a higher deficit relative to programmed, driven mainly by significant shortfalls in revenues relative to projections. The revenue underperformance reflected delayed implementation of several new revenue measures announced in the budget”.
Bank of Ghana

On the expenditure side, the Committee noted that higher interest payments led to some pressures despite restraint on primary expenditures especially on capital expenditures which has declined markedly.

“Financing of the budget was entirely met from domestic sources during the first half of the year as planned borrowing from international sources did not materialize. The outlook is for continued tightened borrowing conditions and this underscores the need to reprioritize spending programmes within the available financing envelopes”.
Bank of Ghana

IMF Bailout and inflation expectations

On July 1, 2022, the Government announced its intention to seek support from the International Monetary Fund, the Committee noted.

“Initial talks have begun, and it is envisaged that a Fund-supported programme will help re-anchor expectations through implementation of reforms to restore creditworthiness, and eventually lead to a regain of access to the international capital markets. The markets have already started internalizing the positive effects of the engagement with the IMF”.
Bank of Ghana

The Committee noted that inflation has persisted on an elevated path. A detailed review of the consumer basket shows that although initially driven by supply side shocks, the initial relative price changes have broadened to almost all the items in the consumer basket.

Over 80 percent of the items in the basket recorded inflation above 20 percent. Inflation perceptions and expectations, as revealed in the Bank’s surveys of consumers and businesses, have increased, and influenced agitations for Cost-of-Living Allowances in workplaces, the Committee highlighted.

The Bank of Ghana responded decisively with its policy tools over the last few months increasing the policy rate by a cumulative 550 basis points since November 2021 and tightened liquidity conditions. The Committee also noted the deceleration in the rate of increase in inflation in the last reading.