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Ghana Monetary Policy September 2018

Ghana: Bank of Ghana maintains the key rate at 17.00% in September

At its three-day meeting concluding on 24 September, the Monetary Policy Committee (MPC) of the Bank of Ghana (BOG) held the monetary policy rate steady at 17.00%. The decision, which was broadly in line with market expectations, marked the second consecutive meeting with no change to the policy rate and, as a result, the rate remained at an over four-year low in September.

The Bank’s decision came against the backdrop of a broadly stable inflationary environment in recent months. Headline inflation eased to 9.6% in July (June: 10.0%), although rose again in August, coming in at 9.9% in the month. As a result, inflation moved closer to the upper bound of the Central Bank’s target of 8.0% plus or minus 2.0 percentage points in August, leaving little room for the Central Bank to ease its policy stance.

The tone of the communiqué was notably more hawkish in September compared to the previous meeting. The Bank expressed concerns about heightened upside risks to the inflation outlook due to both domestic and external factors. Higher petrol prices, the effects of recent tax hikes and a marked depreciation of the cedi amid the sustained strength of the U.S. dollar have increased threats to the Bank’s inflation outlook, with an overall pick up in global inflation and seemingly tightening global financing conditions adding further uncertainty to the equation.

Meanwhile, on 15 September, S&P Global upgraded Ghana’s credit rating from “B-“ to “B” with a stable outlook. The agency cited the improved effectiveness of Ghana’s monetary policy, which has allowed for an establishment of a credible inflation-targeting framework, as one of the key reasons behind the upgrade. The decision also reflected robust growth prospects and a narrower current account deficit. However, uncertainty over the impact of global developments on economic growth—largely stemming from geopolitical tensions, trade disputes and U.S. monetary policy—remains a key downside risk to an otherwise healthy growth outlook for the Ghanaian economy.

The next MPC meeting is scheduled for 21 to 23 November, with the decision set to be released on 26 November.

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