The Monetary Policy Committee (MPC) of the Bank of Ghana on Monday maintained the policy rate at 30.0 per cent for two successive meetings.
Dr Ernest Addison, the Governor of the Central Bank, said the Committee noted that tighter financing conditions, slower growth in the manufacturing and services sectors, and China’s slower recovery were exerting some moderating influence on global economic activity.
The Governor was speaking at a press briefing after the 115th MPC meetings in Accra.
The Committee deliberated on global and 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.
He said earlier aggressive policy tightening by advanced economies’ Central Banks had contributed to the dampening of inflationary pressures with headline inflation decelerating in many of the economies.
He said this had led to a pause in the tightening cycle, but core inflation remained high and was declining slowly due to strong labour markets.
The Governor said Central Banks were expected to maintain policy rates at high levels for much longer periods to contain the still-elevated inflation levels relative to targets.
He said the prevailing higher policy rates, long-term bond yields, and renewed strength of the US dollar could continue to keep global financing conditions tight with consequences for Emerging Market and Developing Economies.
“Furthermore, rising geopolitical tensions is creating uncertainty about crude oil prices and full crystallization of this risk could undermine the disinflation process in many economies, including Ghana,” he added.
On the domestic macroeconomic environment, the Committee observed the broad improvements in the economy, reflecting stable exchange rates, the sustained disinflation process, and increased accumulation of foreign exchange reserves.
These developments reflect improvements in underlying policies, including fiscal consolidation, zero financing of the budget by the central bank, and relatively favourable external conditions.
He said the improvements would be sustained by the continued maintenance of tight Central Bank monetary conditions, sustained fiscal consolidation, and continued reserve accumulation supported through the Gold for Reserves programme.
On growth, domestic economic activity continues to recover, evidenced by the steady improvement in the Bank’s high frequency economic indicators.
The Governor said the CIEA was recovering from negative territory and was likely to turn positive by year end, showing a more solid rebound in economic activities.
He said the private sector credit growth, however, remained dampened due to risk aversion by banks amid tightened policy conditions and rising credit risk.
Dr Addison said with continued improvement in the macroeconomic conditions supported by declining inflation, credit conditions are expected to improve with a turnaround in credit extension to support growth.
He said the external payment position was expected to improve, underpinned by continuous implementation of the IMF-supported programme, and the Gold for Reserves programme, among others.
He said the early completion and settlement of favourable agreement terms with bilateral creditors
and commercial bondholders would help boost confidence and trigger resource flows to the economy.
“The strong build up in reserves have provided cushion against external vulnerabilities, including the delay in the cocoa syndicated loan,” he added.
He said the reserve build-up will even be stronger by the end of the year on receipt of the cocoa loan and disbursement of the IMF second tranche.
The Governor said sustained fiscal consolidation would be needed to place the economy firmly on the course of disinflation and economic growth.
Dr Addison said the 2024 budget statement was also designed to reinforce the ongoing fiscal consolidation.
He said the headline inflation had continued to decelerate in the past few months consistent with forecasts, meanwhile the latest Bank forecast indicated that the disinflation process was expected to continue, supported by the current tight monetary policy stance, relatively stable exchange rate, and base drift effects.
The Committee noted that although inflation was decelerating, it remained high relative to target, therefore, there was a need to keep the policy rate tighter-for-longer until inflation is firmly anchored on a downward trajectory towards the medium-term target.
The Committee also made the following changes to unify the currency holding for the Cash Reserve Ratio requirement on foreign currency denominated deposits and domestic currency deposits for banks and the new unified Cash Reserve Ratio for total deposits (cedi and foreign currency) are to be held in cedis and this is therefore being reset to 15 per cent effective November 30, 2023.
This measure is to reinforce the Bank’s liquidity management operations to address excess structural liquidity conditions in the market and provide additional impetus to the disinflation process.
The Committee will continue to monitor developments in the banking sector and deploy other policy tools, as and when required, to support stability.
GNA