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Bank of Ghana keeps policy rate unchanged at 14.5%

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Dr. Ernest Addison

Monetary Policy Committee (MPC) of the Bank of Ghana has kept the policy rate unchanged at 14.5 per cent for the fourth consecutive session, citing improved outlook to growth and inflation.

Addressing a press conference in Accra, Dr Ernest Addison, the Governor of the Central Bank, said inflation had eased following the spike to 11.4 per cent in September to 10.1 per cent in October 2020, almost at the upper band target.

“The fiscal and monetary policy measures, which have increased liquidity in the economy, appear not to be impacting inflation, partly due to the existence of the output gap,” he said, adding that the Committee expected inflation to return to its central path by the second quarter of 2021.

Dr Addison said macroeconomic conditions had generally improved relative to conditions at the time of the last MPC meeting in September 2020.

He said, “global conditions continue to be supportive, domestic inflation is easing, growth prospects are improving, crude oil prices have stabilized, monetary aggregates have expanded but with minimal impact on inflation, the current account deficit is stable, remittances inflow has remained firm, the exchange rate has been stable and reserve buffers continue to remain strong.”

Dr Addison said after contracting in March, April and May, the real Composite Index of Economic Activity (CIEA) recorded an annual growth of 10.5 percent in September 2020, compared with 4.2 percent growth a year ago.

The key drivers of economic activity during the period were construction activities, manufacturing, and credit to the private sector.

In addition, the Purchasing Managers Index (PMI) which gauges the rate of inventory accumulation by managers of private sector and also captures dynamics in economic activity has increased significantly since the last MPC meeting in September 2020.

The Governor said the latest Bank surveys conducted in October 2020 pointed to improvements in both consumer and business confidence.

Consumer confidence was firmly above pre-lockdown levels supported by rebounding economic activity following gradual relaxation of COVID-restrictions.

“Though below pre-lockdown levels, business confidence has shown a steady and gradual recovery supported by improved company prospects and steady demand for goods and services,” he said.

However, he said, there were key risks, including the budget deficit and the financing needs to support budget implementation and the uncertainty surrounding the pandemic.

On budget implementation, the Governor said it was broadly in line with the revised mid-year Budget estimates following the introduction of fiscal measures to combat the COVID-19 pandemic.

Provisional data for the first three quarters of 2020, showed an overall budget deficit of 9.0 per cent of GDP against the target of 8.9 per cent of GDP.

Over the review period, total revenue and grants amounted to GH¢36.3 billion (9.4 per cent of GDP) compared with the target of GH¢35.7 billion (9.3 per cent of GDP).

Total expenditures and arrears clearance amounted to GH¢70.9 billion (18.4 per cent of GDP), marginally above the target of GH¢70.0 billion (18.2 per cent of GDP). The deficit was financed mainly from domestic sources.

Dr Addison said the developments impacted the stock of public debt which was 71 per cent of GDP (GH¢273.8 billion) at the end of September 2020 compared with 62.4 per cent of GDP (GH¢218.2 billion) at the end of December 2019.

Of the total debt stock, domestic debt was GH¢135.3 billion (35.1 per cent of GDP), of which the financial sector bailout accounts for 4.0 percent of GDP, while external debt was GH¢138.5 billion (35.9 per cent of GDP).

On the external sector, Dr Addison said prices of key export commodities had traded mixed in the year to October 2020 driven by low demand.

He said while Crude oil prices sharply declined by 36.5 percent from the beginning of year to October 2020, prices of gold on the other hand increased by 28.3 per cent to average $1,900 per fine ounce at the end of October.

Gold prices have been largely supported by accommodative monetary policy, increased uncertainty, and the global economic slowdown due to COVID-19, he said.

Cocoa prices averaged $2,423.5 per tonne in October 2020, marginally down by 3.8 per cent on a year-to-date basis due to a pandemic-linked drop in global demand.

In the first nine months of the year, total exports contracted by 7.9 per cent year-on-year to $10.79 billion, driven mainly by the significant decline of $1.22 billion in crude oil export receipts on the back of low prices.

Gold and cocoa export earnings on the other hand, went up by 8.0 per cent and 11.0 per cent respectively, due to favourable prices and production volumes.

He said total imports slowed by $939 million to $9.24billion over the period, underpinned by significant declines in both oil and non-oil imports.

As a consequence, the trade balance recorded a surplus of $1.54 billion (2.3 per cent of GDP) in the first nine months of 2020, compared with $1.53 billion (2.3 per cent of GDP) in the same period of 2019.

Gross International Reserves at the end of October 2020 was $8.62 billion, equivalent to four months of import cover of goods and services compared with $8,41 billion, equivalent to four months of import cover recorded at the end of December 2019.

Dr Addison said the Ghana Cedi as at November 18, 2020 depreciated by 3.1 per cent against the US dollar compared with a depreciation of 10.1 per cent in the same period last year.

Source: GNA

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