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hasress Release BANK OF GHANA
K OF GH
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ES T. 1 957
Monetary Policy Committee
Press Release
January 2016
1. Ladies and gentlemen of the Press, welcome to the first MPC Press briefing in
2016. We concluded our 68th regular Monetary Policy Committee (MPC)
meetings and I present to you the Committee’s decision and highlights of the
deliberations.
2. The Committee has decided to maintain the policy rate at 26 percent.
3. The latest release by the Ghana Statistical Service (GSS) puts inflation at 17.7
percent in December 2015, up marginally from 17.6 in November and 17.4
percent in October. This indicates some moderation in price movements over the
previous month. The slower pace of inflation reflects the tight monetary policy
stance and the ongoing fiscal consolidation. In addition, our latest survey shows
that inflation expectations have broadly moderated.
4. Core inflation (CPI inflation excluding energy and utility prices), which reflects
underlying inflation, has continued to rise, albeit at a slower pace. Going forward,
the Committee expects the slower pace of price changes to continue and steer
inflation down towards the medium target band of 8±2 percent. However, there
are upside risks to the inflation outlook which include uncertainties regarding the
second round effects of the unanticipated petroleum price adjustments,
exchange rate developments as well as worsening external financing conditions.
These risks would however be moderated by lower crude oil prices, and
improvements in the energy situation.
5. The Bank’s Composite Index of Economic Activity (CIEA) for November 2015
indicates a slower pace of growth compared with the same period in 2014.
However, in the medium term, growth conditions are expected to recover,
supported by a sustained improvement in the energy situation, anticipated
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increased production of oil and gas and a general improvement in the
macroeconomic environment. These notwithstanding, there are risks to the
growth outlook. These include, continuing tightness in the monetary and fiscal
policy stance, weak consumer confidence, falling commodity prices and a slack
in global growth.
6. Fiscal consolidation remains on track. For the first eleven months of the year, the
budget recorded a cash deficit of 5.6 percent of GDP against a target of 6.8
percent. Sustaining the fiscal consolidation efforts would complement the tight
monetary policy stance for the attainment of the medium term inflation target.
This would, in turn, help create conditions for long term sustainable growth.
7. Risks from the global environment remain heightened, driven mainly by slower
growth prospects in China and other emerging market economies. The outlook
for the commodities market shows that prices are unlikely to recover in the near
term. Also, the Fed’s start of gradual normalization of monetary policy has
contributed to tightening financial conditions and the transmission of these risks
presents threats to the balance of payments and fiscal outlook.
8. Since the last MPC meeting, the foreign exchange market has been relatively
stable, supported by the tight monetary and fiscal policy stance, inflows from
donors, the pre-export finance facility for cocoa and proceeds from the Eurobond
issue. In 2015, the Ghana cedi depreciated by 15.7 percent compared with 31.3
percent recorded in 2014. Maintaining the tight policy stance, smoothening the
supply of foreign exchange and enforcing the repartriation of export proceeds
into the banking system, in line with the Foreign Exchange Act, are expected to
moderate the seasonal volatilities usually experienced in the first half of the year.
.
9. In assessing the economic conditions, the Committee noted that the policy
tightening in the September and November meetings took into account the
expected increases in utility prices and the normalization of monetary policy in
the US. It further observed that the transmission of these impulses are still
working through the system.
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10. Notwithstanding the unanticipated adjustment in petroleum prices and its
possible pass through effects, our inflation forecast horizon remains broadly
unchanged for the delivery of the medium term target of 8±2 percent in early
2017, barring any further unanticipated shocks. The Committee therefore
concluded that the current tight monetary policy stance, supported by continued
fiscal consolidation and improvement in the energy situation, would provide the
necessary impetus to rein in inflation pressures.
11. In the light of this assessment, the Committee sees the risks to inflation and
growth as balanced, and therefore decided to maintain the monetary policy rate
at 26 percent. The Committee wishes to reiterate that it stands by its price
stability mandate and will continue to monitor developments in the economy and
take appropriate actions, if necessary.
Information Note
The next Monetary Policy Committee (MPC) meeting is scheduled for Friday, March 18,
2016. The meeting will conclude on Monday March 21,2016 with an announcement of
the policy decision.
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