Accra: Inflation risks, liquidity conditions, monetary policy transmission, and global oil market volatility will dominate this week's Monetary Policy Committee (MPC) meeting of the Bank of Ghana (BoG).
According to Ghana News Agency, Dr. Johnson Pandit Asiama, Governor of the BoG, outlined the four critical issues as he opened the committee's 131st meeting. He stated that the committee would assess whether the Bank's current policy framework remains appropriate amid changing domestic and global conditions. The MPC will closely examine the recent rise in inflation and inflation expectations while assessing the effectiveness of reforms to the cash reserve ratio framework and the impact of tighter liquidity following the termination of central bank refinancing for gold purchases. Additionally, the effects of oil market volatility on the balance of payments, reserves, and the exchange rate will be scrutinized.
On the subject of inflation, Dr. Asiama emphasized that the committee would evaluate external commodity price pressures against potential increases in utility tariffs and transport fares. These factors, which started as external shocks, could add a domestic dimension to the inflationary pressures faced by the country. Regarding policy effectiveness, Dr. Asiama noted persistent rigidity of interbank rates at the lower bound of the policy corridor, which the revised cash reserve ratio framework was designed to address. The committee will assess whether these reforms have improved the alignment of short-term market rates with the policy rate and consider if further refinements are necessary.
Dr. Asiama identified tighter domestic liquidity as another key issue, highlighting that the end of central bank refinancing for gold purchases had removed a source of liquidity injection during a period of strong private sector credit growth. He urged the committee to assess the implications for the current policy stance and determine whether the balance between stabilization and structural measures remains appropriate. Dr. Asiama also pointed to renewed volatility in global oil markets, which could affect Ghana's balance of payments, reserve accumulation, and exchange rate, stressing the importance of external buffers, disciplined reserve management, and exchange rate flexibility.
'Our task this week is not simply to assess the latest data; our task is to determine whether the framework that strengthened in May remains fit for the conditions now before us and whether the choices we made then continue to serve the medium-term objectives on which our credibility depends,' Dr. Asiama stated. He assured that Ghana remains resilient despite global uncertainty, citing a mid-June ceasefire that briefly eased geopolitical tensions before renewed hostilities around the Strait of Hormuz pushed Brent crude above US$85 a barrel. These developments underscore the need to carefully assess how external cost pressures could influence the domestic inflation outlook, particularly as higher energy prices have slowed global disinflation and led some central banks to reconsider further monetary easing.
Headline inflation rose from 3.2 percent in March to 5.3 percent in June, driven primarily by transport and haulage costs. Despite this increase, inflation remained within the BoG's target band of 8±2 percent. The economy exhibited growth, with a 6.4 percent increase in the first quarter, up from 6.2 percent a year earlier, while the Gross Domestic Product deflator eased to 4.1 percent. Real private sector credit growth accelerated to 34.1 percent, rebounding from a contraction of 4.5 percent a year earlier, attributed to easier domestic credit conditions. The exchange rate remained broadly stable through the first half of July, with the banking system sound and well-capitalized, although elevated non-performing loan ratios indicated unresolved credit risks.
On Ghana's Policy Coordination Instrument programme with the International Monetary Fund, Dr. Asiama mentioned that engagement on the transition would continue alongside monetary policy decisions.