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Ghana Monetary Policy April 2019

Ghana: Bank of Ghana holds the key rate stable in April

At its three-day meeting concluding on 1 April, the Monetary Policy Committee (MPC) of the Bank of Ghana (BOG) held off further policy easing following an unexpected rate cut in the previous meeting. As a result, the Bank’s key policy rate remained at a five-year low of 16.00% in April, amid elevated high inflation and a weak cedi.

The Bank’s decision came against the backdrop of persistently high inflation. After moderating at the beginning of the year, inflationary pressures picked up again following January’s rate cut (February: 9.4%; January: 9.0%), chiefly due to higher non-food inflation. Nevertheless, inflation remained within the Central Bank’s medium-term target range of 8.0% plus or minus 2.0 percentage points. Furthermore, according to the Bank’s communiqué, underlying inflationary pressures continued to ease in February, reflected in moderating core inflation, which, coupled with well-anchored expectations, signaled that inflation dynamics were largely in line with the Bank’s projections.

In its communiqué, the Bank noted that the upside risks to the inflation outlook increased in recent months. While inflation expectations remained broadly stable, the disinflation trend has weakened somewhat, likely impacted by the depreciating cedi. The cedi has stabilized somewhat in recent weeks, after it tumbled following January’s rate cut. However, the full pass-through effects remain uncertain, casting uncertainty on the inflation outlook.

Looking forward, the Bank of Ghana described current monetary conditions as “relatively tight”, signaling that a rate cut in the coming months is on the table, provided inflationary risks stay at bay.

Commenting on the monetary policy outlook following the Bank’s announcement, Dylan Smith and Andrew Matheny, economists at Goldman Sachs, agreed that further easing is likely underway this year:

“We believe that the benign inflation outlook will allow the BoG to implement two additional 1pp rate cuts this year, further supporting the reactivation of private sector credit extension. The timing of these cuts will, in our view, be opportunistic rather than systematic and driven, in particular, by conditions in the foreign exchange market.”

The next MPC meeting is scheduled for 22–24 May, with the decision set to be released on 27 May.

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