The Monetary Policy Committee (MPC) of the Bank of Ghana, by a majority decision, has raised the policy rate by 100 basis points to 28 per cent.
In addition to the adjustment in the policy rate, the Bank is implementing complementary measures to strengthen liquidity management and enhance monetary policy transmission.
Dr. Johnson Asiama, Governor of the Bank of Ghana, announced that the Bank would introduce a 273-day instrument to augment the existing sterilization toolkit.
Speaking at the 23rd MPC press briefing in Accra on Friday, he noted that the Bank would also intensify the monitoring of banks’ Net Open Positions to ensure compliance.
Additionally, the structure of the Cash Reserve Ratio (CRR) will be reviewed to assess its broader impact on liquidity conditions and financial intermediation in the economy.
Inflation and global economic concerns
Dr. Asiama indicated that as inflation becomes firmly anchored, the Committee would reassess the scope for a gradual easing in the policy stance.
He pointed out that the global economic environment has become more challenging, reflecting trade and economic policy uncertainty.
He highlighted concerns over the series of tariffs announced by the U.S. administration, which could have negative effects on the global economy.
The persistence of these external headwinds might spill over into the domestic economy through trade and financial channels, reinforcing the need for proactive policy measures.
Signs of economic growth
On the domestic front, early indications point to improved growth prospects.
The Bank’s Composite Index of Economic Activity (CIEA) has rebounded, and the Ghana Purchasing Managers’ Index moved above the 50-benchmark in February, signaling increases in new orders by companies.
“Both business and consumer confidence have improved, and private sector credit growth is recovering. These developments suggest a positive outlook for the economy,” Dr. Asiama said.
The Governor also noted that the external sector outlook remains strong, bolstered by increases in gold exports through the Gold-for-Reserve programme, continued growth in remittance inflows, and the government’s commitment to policy and reform implementation under the IMF programme.
The continued buildup of reserve buffers is expected to support the stability of the currency.
Banking sector stability and risks
Dr. Asiama assured that the banking sector remains broadly stable. However, he acknowledged that credit risks in the banking sector remain elevated, as indicated by increased non-performing loan (NPL) ratios.
The Bank’s latest macroprudential risk assessment shows some moderation in systemic risks, driven by improved solvency, liquidity, efficiency, and profitability.
Moving forward, the Bank will continue to closely monitor undercapitalized banks to safeguard the stability and soundness of the banking sector.
Fiscal policy and inflation challenges
The Committee observed that the fiscal stance in 2024 has been expansionary, creating significant fiscal impulses and a liquidity overhang that needs careful management.
The strong liquidity conditions could spill over into other segments of the economy and derail the disinflation path.
“While the government has signaled a strong commitment to fiscal consolidation, monetary policy restraint is required,” Dr. Asiama emphasized.
While headline inflation has declined marginally, it remains a concern.
Both food and non-food inflation are significantly above expectations, and core inflation remains elevated.
Dr. Asiama stated that food inflation is largely driven by supply-side factors, and preventing second-round effects from such increases will be essential.
The Governor further noted that the persistent inflation dynamics over the past year, partly due to fiscal and monetary policy missteps, require a policy reset to re-anchor the disinflation process.
“To restore price stability going forward, a tight monetary policy stance, strong liquidity management, and commitment to the 2025 budget, which seeks to reset the fiscal consolidation process, will be essential,” he concluded.
