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Ghana Monetary Policy July 2020

Ghana: Central Bank stands pat in July, leaving rates at over eight-year low

At its 22–24 July meeting, the Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) decided to stand pat and leave the policy rate unchanged at 14.50%, the lowest level since May 2012.

The decision to hold fire, which was announced on 27 July, was driven by the Bank’s assessment that “some monetary restraint” was needed in the face of a widening budget deficit, due to fiscal stimulus to curb the economic fallout from Covid-19, a residual financing gap and rising inflation. Price pressures have continued to rise since the last MPC meeting in May, with inflation averaging 11.0% in the second quarter (Q1: 7.8%). The spike in inflation was driven by panic-buying prior to partial lockdowns announced at the tail end of the first quarter. Regarding the economy, the Bank noted that the economy contracted at a double-digit pace in May as a result of Covid-19 and associated containment measures. The economy continued to slow throughout the quarter, as evidenced by slowing growth in the money supply.

In its press release, the MPC sounded slightly more hawkish and noted the need for monetary restraint given deteriorating fiscal metrics; however, no clear guidance on future rate movements was provided. That said, the Bank noted stable inflationary pressures when accounting for extraordinary food price pressures. As such, the Bank could lower the policy rate to kickstart economic activity; while some FocusEconomics panelists expect the Bank to stay on hold, others see the Bank lowering rates by year-end.

The next Monetary Policy Committee meeting is scheduled for 22–25 September, with the decision to be announced on 28 September.

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