The central bank has maintained its policy rate at 20 percent amid growing concerns that inflation could drift further from the 8±2 medium-term target.
Speaking at the press meeting to announce the policy rate yesterday, Governor of the Bank of Ghana Dr. Ernest Addison said although inflation expectations appear to be well-anchored, the Monetary Policy Committee observed some emerging pressures in underlying inflation over the last two months of 2017.
“Under the circumstances, and to ensure that the inflation target horizon is maintained and the medium-term inflation target of 8±2 percent is achieved this year, the committee decided to maintain the monetary policy rate at 20 percent,” the Governor said.
Inflation for December 2017 climbed to 11.8 percent, drifting further away from the end-year inflation target of 11.4 percent. Inflationary pressures were further heightened when the price of petroleum products inched up marginally.
Despite reducing the policy rate by a total 550 basis points in 2017, maintained at 20 percent, this time, is expected to hold inflation in check and prevent it from moving further from the 9.8 percent target for 2018.
‘Fiscal consolidation on track’
Speaking at the news conference in Accra, the central bank governor said government’s fiscal consolidation process is on track and expected to deliver a better-than-programmed budget deficit in 2017, as expenditures were properly aligned to address shortfalls in revenues.
Economic activity, he added, has picked up significantly, while private sector credit growth is recovering.
Credit to the private sector from banks grew steadily – from 6.8 percent in August 2017 to 12.8 percent in December on year-on-year basis, reflecting recovery from the slack in the first half of the year.
The non-oil sector of the economy is also rebounding—after the sluggish performance in the first half of the year—supported by continued improvements in economic fundamentals and improved investor confidence, the Governor said.