Bank of Ghana gives reasons why it kept the policy rate at 27%

At the Monetary Policy Committee Meeting, of the Bank of Ghana held this week, the central bank maintained the policy rate at 27 per cent and gave reasons for the decision.

According to the central bank, global economic conditions have broadly improved in 2024, as global inflationary pressures have gradually eased over the period, which has led to easing monetary policy stance across several countries. Consequently, it noted that global financial conditions are expected to ease gradually as policy stances become more accommodative and inflation targets in Advanced Economies are met and expectations anchored.

These conditions, the Bank said are expected to result in improvements in investor sentiments towards emerging market and developing economies. On top of the projected steady growth for 2025, the international markets have priced in a much stronger US economy stemming from the policies to be implemented by the new US administration.

“This has already instigated a stronger US dollar with implications for emerging markets and developing economies, including Ghana. Complementary fiscal and monetary policies will therefore have to be carefully set to prevent spillovers to the Ghanaian economy,” it said.

The Bank further noted that external sector conditions remain positive, with sustained and stronger-than-programmed rebuilding of reserve buffers contributing to the stability of the domestic currency, noting that the performance of the external sector was mainly driven by strong growth in gold exports, which also largely impacted positively on growth. In the outlook, the external sector is expected to remain strong as commodity prices remain favourable amid improvements in production. Overall, while the external sector conditions are expected to provide an anchor to exchange rate stability, key risks in the outlook including challenges in the energy sector will have to be closely monitored.

According to the Bank the stronger-than-projected growth and generally improved macroeconomic conditions are spilling over positively to the banking sector.

“To sustain this effort, the Bank of Ghana will continue to ensure that banks with capital gaps adhere to their committed recapitalisation plans to shore up solvency. Supervisory activities will be intensified to ensure that banks continue to address the high NPLs, which poses potential risks to the stability of the industry,” it said.

It added that the improvement in domestic macroeconomic conditions is also expected to bolster debt servicing capabilities of corporate and household sectors, which would help mitigate further build-up of NPLs within the industry.

It further stated that the inflation profile remains elevated, largely driven by food price movements, especially in the last quarter of the year, adding that the climate-related factors including the dry spell in some parts of the food-growing regions of the country and the late onset of rains, negatively affected production, while supply chain weaknesses generally affected food prices. While the inflation outturn for the year 2024 deviated from target, it is expected that the disinflation process will resume, contingent on renewed efforts at fiscal consolidation, which is anticipated in the new administration’s economic policy agenda and the yet-to-be-presented 2025 budget statement. The Bank’s latest inflation forecast shows a steady decline and return to the path of disinflation, with an extended time horizon of achieving the medium- term target of 8±2 percent.

“Under the circumstances, the Committee decided to keep the monetary policy rate unchanged at

27.0 per cent,” the Bank said.

By Emmanuel K Dogbevi

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