By: Naa Dzagbley Ago
The Monetary Policy Committee, MPC of the Bank of Ghana has maintained the policy rate at 13.5% for the third consecutive time.
A move the Committee attributed to the fiscal consolidation challenges, such as inherent risks associated with wage settlements and energy sector payments in the midst of low revenue mobilization.
Addressing journalists in Accra, Governor of the Bank, Dr. Ernest Addison said it was necessary to keep the policy rate unchanged due to developments in the local and global economies.
“The Committee noted that the recovery in global economic activity has continued, although unevenly spread across regions and countries. But, uncertainties regarding the continued spread of the Delta Variant of the COVID-19 virus, variations in policy stimulus programmes, and low access to vaccines in emerging market and frontier economies may weaken near-term growth prospects’’, he noted.
“Global inflationary pressures are expected to be strong in the near term. However, the factors driving headline inflation are judged to be temporary. The still sizable spare capacity in the global economy and the slackness in labour market conditions would restrain wage growth and prevent a significant and sustained pick-up in underlying inflation. Inflation is expected to return to their target over the medium-term as the spare capacity is eroded”, the BOG Boss pointed out.
Dr. Addison said debt sustainability efforts must be intensified as the country’s debt stock now stands at ₵ 335.9 billion Cedis, which is above the budget target of 5.7 %
With regard to the Cedis’ performance, Dr. Addison noted that it has fared creditably well with a year to date depreciation of 1.8%. He said expected foreign exchange inflows from the SDR and the cocoa syndicated loan will help to cushion the pressures, he noted.
“The external payments position remained strong despite the decline in the trade surplus due to a stronger import growth and a widening current account deficit which has been adequately financed with external inflows from portfolio and foreign direct investments. The Ghana Cedi has performed strongly with a year-to-date depreciation of 1.8%. The country’s higher sovereign spread has not shifted foreign investor behaviour as net monthly purchases of securities on both the debt and equity markets remain relatively favourable. In the outlook, rising interest rates in advanced economies on account of tapering may pose some risks. However, the strong reserve build-up and foreign exchange inflows from the recent SDR allocation and the expected syndicated cocoa loan proceeds should help to cushion currency pressures in the near-term’’, according to Dr. Addison.
On the domestic front, the Governor stated that the Committee was of the view that growth continues to recover from the impact of the pandemic as high frequency economic indicators point to continued recovery in economic activity, even though below pre-pandemic levels.
“Although consumer confidence picked up, weakening business sentiments, stemming from supply disruptions, is adversely impacting input costs, driving down short-term company prospects. While credit to the private sector saw a marginal pickup, the trends remain below expectations largely on account of pandemic-related risk aversion. The COVID-19 related macro-prudential measures, put in place by the Bank of Ghana, will be maintained for the time being to support full recovery in economic activity”, he stressed.
Though the banking sector balance sheet performance remained strong with sustained growth in total assets, investments and deposits, the MPC also took note of the fact that the trend of increased domestic financing of the deficit, driven by high-yielding government paper held largely by banks, was crowding out credit to the private sector.