The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has reaffirmed its decision to maintain the policy rate at 27%, a strategic choice that follows a previous reduction from 29% in September 2024. This move aims to stabilize inflation expectations and mitigate exchange rate volatility, addressing the ongoing economic challenges in the country. The MPC’s decision was made after a thorough review of the prevailing economic conditions, with a focus on the deteriorating effects of soaring food prices, past exchange rate pressures, and the increasing costs of fuel and utility tariffs. The committee’s statement, released on November 29, 2024, explicitly points out that these factors have exacerbated the situation, complicating efforts for disinflation, and changing the overall inflation trajectory.
The committee provided insights into the inflation projections, which indicate a concerning rise attributed primarily to substantial increases in food prices. These inflation projections have worsened since the last MPC meeting; the average inflation forecast for the coming year has slightly increased from 19.0% to 20.1%. The MPC acknowledged that the earlier depreciation of the local currency, the cedi, contributes to this trend and impedes the disinflation process. Additionally, they recognize the crucial role that policies must play in alignment with the ongoing International Monetary Fund (IMF) program to ensure that the Ghanaian economy remains on a sustainable path.
Risks linked to the persistent depreciation of the cedi against major trading currencies are significant, as they could have lasting impacts on long-term inflation expectations. The MPC emphasized that these dynamics necessitate careful policymaking, as the depreciation could further exacerbate inflationary pressures. In this context, the committee reiterated the importance of balancing the need for inflation control with the challenges presented by currency volatility, especially in the face of high and unpredictable food prices resulting from both domestic and global factors.
Furthermore, the MPC adjusted its timeline for achieving the target inflation band of 6-10%, moving the expected date from the third quarter of 2025 to the fourth quarter of 2025. This adjustment reflects the seriousness of inflationary pressures currently facing the economy and underscores the committee’s commitment to adapt its policies responsively. Strengthening the cedi is deemed essential in supporting beneficial price developments, which is vital for overall economic stability and growth.
In conclusion, the decision to maintain the policy rate at 27% underscores the MPC’s cautious approach in navigating the complexities of Ghana’s current economic landscape. The ongoing challenges of high food prices, volatile exchange rates, and rising costs of living necessitate a careful balance of policies aimed at stabilizing the economy without hindering growth. The MPC remains committed to monitoring these factors closely and adjusting their strategies accordingly, as they work to promote a resilient economic environment conducive to sustainable development.
