BoG warns Middle East tensions threaten Ghana’s disinflation

Governor of the Bank of Ghana, Dr. Johnson Asiama, has cautioned that rising tensions in the Middle East could undermine Ghana’s disinflation trajectory, even as the country records stronger macroeconomic fundamentals.

Addressing the opening session of the 129th Monetary Policy Committee (MPC) meeting, the Governor said developments in the global geopolitical environment have introduced new risks that could shape the central bank’s policy outlook.

“The external environment has changed since our last meeting. A significant external development has entered the picture, and that has to do with the escalation of the conflict in the Middle East.

“This conflict is disrupting key energy and shipping corridors. It is increasing volatility in global oil markets and introducing new uncertainty into the trajectory of global inflation,” he said.

Imported inflation risks

Dr. Asiama noted that higher oil prices driven by geopolitical tensions could transmit directly into Ghana’s domestic inflation dynamics.

“For Ghana, the transmission channels are clear. Sustained oil price increases could raise the risk of imported inflation and could also tighten global financial conditions,” he noted.

He added, however, that global uncertainty could simultaneously support gold prices — an important export commodity for Ghana.

“Geopolitical uncertainty tends to support gold prices. You know the role of gold in our equation. This could benefit our trade balance,” he added.

Nevertheless, he stressed that the overall balance of risks remains skewed toward inflation.

“Taken as a whole, the net balance of risks from this external shock could be inflation, and hence this has to be considered in our deliberations.”

Inflation dynamics pose policy dilemma

The Governor also pointed out that Ghana’s inflation has dropped below the central bank’s official target band, creating new considerations for monetary policy.

“At 3.3 percent, inflation is not just simply within the band; it is below the lower band.”

He said the MPC would therefore need to carefully evaluate whether the current policy stance remains appropriate.

“For an economy such as ours, where activity is trending and credit is beginning to recover, the committee must assess how the current policy stance interacts with the evolving macroeconomic conditions.”

Reserve accumulation initiative

The committee is also reviewing the government’s newly announced Ghana Accelerated National Reserve Accumulation Programme (GANRAP), which aims to significantly boost Ghana’s international reserves.

“It seeks to raise international reserves to 50 months of import cover by 2028, compared to current levels of around 5.8 months of import cover,” the Governor said.

While stronger reserves would enhance economic resilience, Dr. Asiama noted that the programme could also have implications for monetary policy operations.

“Initiatives of this scale raise questions regarding liquidity conditions, the impact on the central bank’s balance sheet, and the interaction between reserve accumulation and monetary policy operations.”

Banking sector resilience

Touching on financial sector conditions, the Governor said Ghana’s banking sector remains stable, profitable and well-capitalised.

“The banking sector remains sound, profitable and well capitalised, with asset quality improving meaningfully over the past year.”

However, he said credit expansion remains modest and requires further analysis.

“We need to evaluate whether the constraint is from the supply side, whether it is on the side of banks in terms of risk appetite, capital buffers or non-performing loans, or whether it is from the demand side in terms of weak borrower demand.”

Policy decisions amid uncertainty

Dr. Asiama emphasised that although Ghana’s economic indicators have improved substantially, policymakers must remain cautious in the face of growing global uncertainty.

“The question before the committee is not whether conditions have improved. They have indeed, significantly and across the board.”

He added that the committee’s decision must reflect both domestic progress and external risks.

“We must make our decision at the intersection of domestic success and growing external uncertainty.”

The 129th MPC meeting is expected to review inflation developments, macroeconomic trends and global risks ahead of the Bank of Ghana’s announcement of the next Monetary Policy Rate on March 18, 2026.