The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has decided to maintain the policy rate at 27%, a move aimed at stabilizing inflation expectations and addressing currency volatility. This decision comes after a reduction from 29% in September 2024 and follows a thorough review of current economic conditions.
Economic Factors Behind the Decision
The MPC highlighted that inflation projections remain slightly elevated due to high and unstable food prices, the pass-through effects of previous exchange rate pressures, rising fuel prices, and increased utility tariffs. These factors, along with a depreciating currency earlier in the year, have disrupted the disinflation process and altered the inflation trajectory.
The committee also noted that uncertainties associated with the upcoming elections and increased demand for foreign currency have caused temporary deviations in the exchange rate from fundamental economic trends. However, it anticipates that the recent stabilization of the cedi will continue as election-related uncertainties diminish and the central bank works to bolster foreign exchange reserves.
Inflation and Policy Outlook
The MPC expressed that inflation, which edged up to 22.1% in October 2024 from 21.5% in September, is driven by both food and non-food inflation. The average inflation forecast a year ahead has risen to 20.1%, a slight increase from the 19.0% predicted during the last MPC meeting. The timeline for inflation returning to the target band of 6-10% has been adjusted to Q4 2025, shifting from the original forecast of Q3 2025.
The committee emphasized that while current measures align with the ongoing International Monetary Fund (IMF) program, preventing recent negative trends, such as the continued depreciation of the currency against major trading partners, is crucial for long-term inflation expectations.
Year-End Inflation Target
The government’s year-end inflation target is set at 15%. However, with just a month remaining, achieving this goal could be challenging due to the persistent inflationary pressures.
The MPC’s decision to hold the policy rate at 27% is seen as a strategic move to stabilize the economic environment as the country navigates through these pressures.
