The Bank of Ghana (BoG) held its policy rate unchanged at 26 per cent as the risk to inflation and growth is in balance.
“In assessing the current economic conditions, the Committee views the risks to inflation and growth as balanced and decided to maintain the policy rate at 26 per cent,” Dr Abdul-Nashiru Issahaku, the Governor of BOG, told a press conference on Monday.
Dr Issahaku said to a large extent, the pace of decline in inflation had been reinforced by the current tight monetary policy stance and stability in the local currency.
“Headline inflation is likely to move within the medium-term target band of 8 percent plus or minus 2 percent in the third quarter of 2017, against earlier projections of mid-2017,” Dr Issahaku said.
However, a key risk to inflation is the extent to which petroleum product prices, transport costs and utility tariffs are adjusted upwards in the next two-quarters and the potential second round effects from such adjustments on prices.
He said the Committee remained committed to its price stability mandate and would continue to monitor developments in the economy and take further policy actions, if necessary.
Dr Issahaku said the growth prospects for the rest of the year would be impacted positively by the stability in the foreign exchange market, continued improvement in consumer and business sentiments, and the realisation of additional oil and gas production from the TEN (Tweneboa, Enyenra and Ntomme) oil fields.
However, the tight credit conditions, electricity supply shortfalls and continued fiscal tightness may moderate the pace of economic expansion, he said.
On the United Kingdom’s vote to leave the European Union, the Governor said it was too early to determine the full implications for the country.
He said based on Ghana’s strong relations with both the EU and the UK the impact of Brexit was likely to transmit through the trade sector, foreign direct investment, budgetary support and the domestic currency market.
Dr Issahaku said the current uncertainties and volatilities in global financial markets may persist until the post-Brexit negotiations commenced with the EU.
“Going forward, the potential fallouts from post-Brexit negotiations will be closely monitored to take the necessary policy actions to dampen any adverse effects on the domestic economy,” he said.
Dr Issahaku said volatilities in the foreign exchange market had subsided over the first six months of 2016, alongside relative stability in the local currency largely supported by tight policy stance and improved foreign exchange inflows.
On the interbank market, the cedi cumulatively depreciated by 3.3 percent against the US dollar from January to June 2016 compared with 26.1 percent over the same period of 2015.
Dr Issahaku said expected inflows from the cocoa pre-export finance facility and expected issuance of the Eurobond in the last quarter would boost reserves, improve liquidity on the foreign exchange market and support the disinflation process over the forecast horizon.