Bank of Ghana holds at 14% with inflation at 5%, below its target band
Serguey Asael Shinder2 min readThe Bank of Ghana's Monetary Policy Committee voted unanimously on 24 September to keep the monetary policy rate at 14.0%, after its 132nd meeting. The decision stands out for the gap it leaves: headline inflation was 5.0% in August, up from 4.6% in July but still below the lower edge of the Bank's medium-term target range of 8% plus or minus 2 percentage points.
The Committee's statement explains why it did not cut. Inflation rose in August mainly because of non-food prices, which climbed to 6.8% as higher utility tariffs and crude oil prices passed through; food inflation eased to 3.0%, and the Bank's core measure, which excludes energy and utilities, slipped to 4.2%. Headline inflation is projected to move up into the target band over the next few quarters. The upside risks it lists are further utility tariff increases, rising pump prices and their link to transport fares, a stronger US dollar following the US rate increase, and spillovers from global supply chains; fiscal consolidation, better food supply and exchange rate stability are the offsetting risks. The Committee judged the balance of risks broadly balanced.
The domestic numbers show an economy running quickly. Real GDP grew 6.0% in the second quarter. Private sector credit growth rebounded to 35.5% in August from 13.3% a year earlier, as the 91-day treasury bill rate fell to 5.4% from 10.3% and average bank lending rates to 15.9% from 24.2%. Broad money grew 20.4%. The fiscal deficit for the first seven months was 0.2% of GDP against a target of 1.9%, and gross international reserves stood at 12.0 billion dollars, 4.5 months of imports, on 22 September. The next meeting concludes on 18 November.
What it means
With inflation at 5% and the policy rate at 14%, Ghana's real policy rate is high by any standard. The Committee is looking ahead rather than at the current reading: it expects inflation to rise, and a cut now would have to be reversed if tariff and fuel increases feed through as it fears.
The statement also shows how the global tightening cycle reaches frontier economies. The Committee names the Federal Reserve, the European Central Bank and the Bank of Japan as having raised rates, and lists a stronger dollar among its inflation risks - a reminder that a central bank with low domestic inflation can still find its room to ease set elsewhere.