The Bank of Ghana's Monetary Policy Committee (MPC) will convene this week to address critical economic challenges. These challenges include inflation risks, liquidity conditions, and global oil market volatility. Dr. Johnson Pandit Asiama, Governor of the Bank of Ghana (BoG), outlined these four key issues at the opening of the committee’s 131st meeting on Monday.
The committee will specifically assess whether the Bank’s current policy framework remains suitable. This evaluation comes amidst changing domestic and global economic conditions. The MPC will scrutinize the recent rise in inflation and inflation expectations. It will also examine the impact of tighter liquidity following the termination of central bank refinancing for gold purchases. Furthermore, the committee will consider the effects of oil market volatility on Ghana’s balance of payments, reserves, and the exchange rate.
This assessment is crucial for Ghana's broader economic stability. Headline inflation increased from 3.2% in March to 5.3% in June, primarily due to rising transport and haulage costs. Despite this increase, inflation remains within the BoG’s target band of 8% plus or minus 2%. The economy grew by 6.4% in the first quarter, an improvement from 6.2% a year earlier. Real private sector credit growth also accelerated significantly to 34.1%, contrasting with a 4.5% contraction in the previous year.
Dr. Asiama noted that external commodity price pressures could combine with potential increases in utility tariffs and transport fares. These factors could add a domestic dimension to what began as an external shock. He also highlighted the persistent rigidity of interbank rates at the lower bound of the policy corridor. The revised cash reserve ratio framework was designed to address this issue. The committee will assess if these reforms have improved the alignment of short-term market rates with the policy rate.
The end of central bank refinancing for gold purchases has removed a source of liquidity injection. This comes at a time of strong private sector credit growth. Dr. Asiama urged the committee to assess the implications for the current policy stance. He also stressed the importance of determining if the balance between stabilisation and structural measures remains appropriate. Renewed volatility in global oil markets, with Brent crude surpassing US$85 a barrel, also poses a significant risk. Higher energy prices could impact Ghana’s balance of payments, reserve accumulation, and exchange rate.
Dr. Asiama affirmed that external buffers, disciplined reserve management, and exchange rate flexibility are essential. He stated, “Our task this week is not simply to assess the latest data; our task is to determine whether the framework that strengthened in May remain fit for the conditions now before us.” He added that the committee must decide if the choices made then continue to serve the medium-term objectives on which the Bank’s credibility depends. Ghana has shown resilience despite global uncertainty, with the exchange rate remaining broadly stable through the first half of July. The banking system also remains sound and well-capitalised, though elevated non-performing loan ratios indicate unresolved credit risks. Engagement on the Policy Coordination Instrument programme with the International Monetary Fund will continue alongside monetary policy decisions.