The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has maintained the policy rate at 14.5%, citing sharp increases in energy prices, rising demand pressures, and persistent supply chain disruptions.
“As a result, headline inflation across several advanced and emerging market economies rose above targets. These price trends have triggered reversals of the accommodative policies put in place to stimulate recovery from the pandemic,” the bank said in a statement on Monday (31 January).
The MPC met last week and reviewed recent global and domestic developments including the outlook for the economy.
The policy rate signals the rate at which the central bank lends to commercial banks in the country.
The statement said the Bank of Ghana’s updated Composite Index of Economic Activity (CIEA) recorded an annual growth of 10.2% in November 2021, compared with 11.9% in the corresponding period of 2020.
The key drivers of economic activity during the period were increased industrial production, consumption, exports, construction activities, and air-passenger arrivals.
Results from the Bank of Ghana’s latest confidence surveys conducted in December 2021 signalled mixed sentiments. “While consumer confidence softened because of recent increases in ex-pump petroleum prices and the announcement of new tax measures in the 2022 budget.”
However, the BoG said business sentiments, on the other hand, improved. The improved business sentiments were driven by the achievement of short-term company targets and optimism about companies’ growth 3 prospects.
Credit performance
The BoG said credit performance improved marginally, consistent with the gradual recovery in the real sector. Annual nominal growth in private sector credit increased to 11.2 per cent in December 2021 compared with 10.6 per cent, in the corresponding period of 2020.
However, the bank noted that sustained price pressures weighed on 6 real private sector credit, which contracted by 1.3 per cent compared to modest growth of 0.2 per cent, over the same comparative period.
“The COVID19 regulatory policy measures were kept in place during 2021 and helped provide some support to lending activities of banks. New Advances extended by the commercial banks to the economy was GH¢36.4 billion, registering a growth of 6.8 per cent compared with new advances of GH¢34.1 billion extended in 2020.”
Activity on bond market
On the money market, the Central Bank indicated that interest rates reflected mixed trends across the yield curve. The 91-day and 182-day Treasury bill rates declined to 12.49 per cent and 13.19 per cent respectively in December 2021, from 14.08 per cent and 14.13 per cent respectively, in December 2020.
Similarly, the rate on the 364- day instrument decreased marginally to 16.46 per cent from 16.98 per cent over the same comparative period. Rates on the 2-year and 5-year bonds increased to 19.75 per cent and 21.00 per cent respectively, from 18.50 per cent and 19.85 per cent respectively, while rates on the 3-year, 6-year, 7-year and 10-year bonds broadly declined.
The rates on the 15-year and 20-year bonds, however, remained unchanged at 19.75 per cent and 20.20 per cent respectively, over the same comparative period.
Inflation on the rise
The bank said headline inflation has remained above the upper band of the medium-term target of 8±2 per cent since September 2021.
Additionally, all the core inflation measures and inflation expectations have increased, which point to heightened underlying inflation pressures.
“The latest forecast shows that inflation would likely remain above target in the near-term, driven by both external and domestic factors, and only return to target in about four-quarters ahead.”
The committee said it will continue to monitor the impact of these policy measures and as needed call an extraordinary meeting to re-assess the inflation outlook over the forecast horizon and take the necessary policy decisions accordingly.
See the full statement below:
MPC Press Release – January 2022
Nicholas Brown
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