Cedi, uncertainties force monetary policy stay

The cedi’s sluggish performance, especially over the past month, has proven instrumental in the Bank of Ghana’s decision to stay its policy rate at 16 percent.

The central bank governor, Dr. Ernest Addison, told journalists in Accra that it kept its policy rate unchanged among other things to assess the pass through effects of the cedi depreciation which peaked at 8 percent on the interbank market as at March 19, 2019.

Although the pace of depreciation of the local currency had moderated towards the end of last week, the overall weakness the cedi exhibited against the dollar had proven costly, compelling the Monetary Policy Committee to maintain the tight policy stance.

“While headline inflation remains within the medium-term target band, the latest forecast shows some upside risks in the outlook but not enough to dislodge inflation expectations.

Though the exchange rate pressures have moderated significantly, the full pass through of recent depreciation to inflation remains to be assessed,” the Governor said.

Inflation declined in January to 9 percent, from 9.4 percent in December 2018, but inched up to 9.2 percent in February 2019 driven by increases in non-food inflation.

Since the last quarter of 2018, inflation has hovered within a band of 9.0 – 9.5 percent, underpinned by a relatively tight monetary policy stance.

Underlying inflationary pressures, as measured by the Bank’s core inflation have continued to ease and inflation expectations remain well-anchored, the governor said.


The need to remain steadfast in implementation of prudent policies to anchor the hard-earned stability in macroeconomic conditions post the IMF programme, was another reason the MPC  gave in staying the policy rate.

“In this respect, the Committee observed that there were risks to the outlook which would have to be monitored very closely. Overcoming these risks would require vigilance and time consistent policy actions,” Dr. Addison noted.

The governor cited an example in the energy sector where large foreign exchange payments for excess capacity associated with the ‘Take or Pay’ Power Purchase Agreements which has contributed to higher demand for foreign exchange.

“Also, the vulnerability associated with high non-resident holdings of domestic debt which poses significant risks to the fiscal consolidation process, debt dynamics, and the Bank of Ghana’s efforts at building reserve buffers, should be addressed,” he added.

In keeping the policy rate at 16 percent, the central bank said it will closely monitor developments in the coming months and not hesitate to take immediate and decisive policy actions including on a tighter monetary policy stance, should these risks materialize and threaten to dislodge the disinflation process.

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