The Bank of Ghana (BoG) has decided to hold steady the policy rate at 27 percent, citing persistent inflationary pressures, particularly within the food sector, as the primary reason. This decision reflects the MPC’s assessment that inflation remains significantly above the medium-term target of 8±2 percent. While global economic conditions have generally improved in 2024, with easing inflationary pressures and more accommodative monetary policies in several countries, the BoG remains cautious. The committee acknowledges the potential for improved investor sentiment towards emerging markets like Ghana, but also recognizes the risks posed by a strengthening US dollar, a consequence of anticipated US economic policies. Therefore, the BoG emphasizes the need for carefully coordinated fiscal and monetary policies to mitigate potential spillover effects on the Ghanaian economy.
Ghana’s external sector performance has been positive, characterized by robust reserve growth, primarily driven by increased gold exports. This has contributed to exchange rate stability. The outlook for the external sector remains optimistic, with favorable commodity prices and improved production anticipated. However, the BoG remains vigilant about potential risks, such as challenges in the energy sector, which could impact the overall economic stability. Maintaining a stable exchange rate remains a priority, and the BoG will closely monitor these external factors to ensure continued positive performance.
The improved macroeconomic environment has positively impacted the banking sector. The BoG is committed to ensuring financial stability by requiring banks with capital shortfalls to adhere to recapitalization plans. Increased supervisory oversight will focus on addressing high non-performing loans (NPLs), a potential risk to the industry’s stability. The expectation is that the improved macroeconomic conditions will also enhance the debt servicing capacity of corporations and households, thereby mitigating future NPL accumulation. This multi-pronged approach aims to strengthen the banking sector and ensure its resilience against potential shocks.
Inflation remains a major concern for the BoG. Food prices, particularly affected by climate-related factors like dry spells and delayed rains in key agricultural regions, have been the main driver of inflationary pressures. Supply chain disruptions have also played a role. While the 2024 inflation target was missed, the BoG expects disinflation to resume in the coming period, contingent on renewed fiscal consolidation efforts by the new administration, as outlined in their economic policy agenda and the upcoming 2025 budget.
The Bank of Ghana’s decision to maintain the policy rate reflects a balanced approach, acknowledging both the positive global economic trends and the specific challenges facing the Ghanaian economy. The focus on strengthening the banking sector, coupled with the anticipation of fiscal consolidation, underscores the BoG’s commitment to achieving medium-term price stability. The MPC will continue to monitor both domestic and international developments, adjusting policies as necessary to ensure macroeconomic stability and sustainable economic growth.
The interplay between global economic forces and domestic challenges will significantly influence Ghana’s economic trajectory in the near term. The BoG’s proactive stance, emphasizing both vigilance and strategic intervention, aims to navigate these complexities effectively. The success of this approach will depend on the coordinated efforts of both monetary and fiscal authorities, as well as the resilience of the Ghanaian economy in the face of potential external shocks. The forthcoming budget statement and the new administration’s economic policy will play a crucial role in shaping this trajectory and determining the effectiveness of the BoG’s monetary policy stance.
