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Ghana Monetary Policy May 2020

Ghana: Bank of Ghana stands pat in May amid greater upside risk to inflation

At its 15 May meeting, which was brought forward from 22 May due to the Covid-19 crisis, the Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) opted to stand pat and keep the policy rate unchanged at 14.50%, the lowest level since May 2012.

The decision to hold fire likely reflected a wait-and-see approach by the Bank as it cited greater upside risks to its inflation outlook; inflation jumped to 10.6% in April (above the 6.0%–10.0% target range) due to panic-buying episodes and the partial lockdown of the country’s two largest cities, driving up food prices. The Bank noted that economic activity contracted in March on the back of government-imposed measures and the global pandemic weighing heavily on tourism. Moreover, domestic financial conditions tightened as evidenced by near-flatlining private-sector credit growth. However, elevated price pressures persuaded the Bank that it was too risky at the current juncture to cut rates to support the economy.

Additionally, the Bank announced that it had triggered the emergency financing provisions, allowing it to increase purchases of government securities. The move will help the government finance the fiscal shortfall, which is expected to increase notably this year due to historically low oil prices and weak growth. Indeed, the BoG announced the purchase of a government bond valued at GHS 5.5 billion, while standing ready to increase its purchases to GHS 10.0 billion.

The next Monetary Policy Committee meeting is scheduled for 22–24 July, with the decision to be announced on 27 July.

In its press release, the MPC gave no clear guidance on future rate movements. However, providing inflation is under control, the MPC is expected to lower its policy rate going forward as the impact of the global pandemic becomes clearer.

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