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Ghana Monetary Policy July 2018

Ghana: Bank of Ghana leaves policy rate unchanged in July

At its three-day meeting concluding on 20 July, the Monetary Policy Committee (MPC) of the Bank of Ghana (BOG) kept the monetary policy rate unchanged at 17.00%. The decision, which followed a cut that brought the rate to an over four-year low at the previous meeting in May, was largely in line with the expectations of most market analysts.

Inflationary pressures intensified for the second consecutive month in June. Coupled with a notable depreciation of the cedi against the U.S. dollar in recent months, this left little room for the Bank to continue its aggressive monetary policy easing cycle. Rising interest rates and the stronger U.S. dollar have fueled capital outflows from emerging markets, including Ghana, thus exerting downward pressure on the domestic currency market. July’s decision was the first “hold” this year, and it came in the face of inflation jumping to 10.0% in June, to the upper bound of the Central Bank’s inflation target of 8.0% plus or minus 2.0 percentage points. The BOG’s decision seemingly reflected its defensive position with regards to continued turmoil in global trade relations and mounting geopolitical uncertainties, which could have a profound impact on the commodity-dependent Ghanaian economy.

According to the BOG’s communiqué, underlying inflationary pressures remain subdued, as core inflation continued to moderate in recent months. In addition, weighted inflation expectations among consumers, businesses and the financial sector waned somewhat in May and June, remaining well-anchored around the Bank’s inflation target. As a result, the Central Bank made no changes to its medium-term inflation forecast, which signals a likely return to a monetary policy easing cycle in the remainder of the year. The majority of our panelists see the policy rate 100 basis points below the current level at the end of the year.

The next MPC meeting is scheduled for 18 September, with the decision set to be released on 24 September.

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