The Bank of Ghana's Monetary Policy

The Bank of Ghana's Monetary Policy

April 09, 2024

Global Developments 

2023 saw stronger than expected economic activity led by better-than-expected numbers from China and the United States as well as a rebound of business investments in the Euro area. The World Economic Outlook (WEO) report of the IMF for 2023 released in January 2024 saw global growth increasing to 3.1% at the end of 2023, up by 0.2 percentage points from October 2023. Global growth is forecast to reach 3.1 percent and 3.2 percent in 2025. 

Though tighter monetary policy has served to lower food and energy prices, Geopolitical developments in the Middle- East especially the Red Sea Attacks have raised concerns about longer delivery times and shipping costs. This development, along with OPEC+ production cuts pose a threat to the disinflation process of both advanced and emerging market economies. 

Monetary policy rates are expected to continue to be high to fight inflation Bond yields have retreated in expectation of policy cuts. Sovereign spreads in emerging markets and developing economies remain elevated amid concerns of growing indebtedness. 


Domestic Macroeconomic Conditions 

GDP data for 2023 recently released by the Ghana Statistical Service point to a real GDP growth rate of 2.9 percent, compared with the revised target of 2.3 percent, driven by the services and agriculture sectors. In terms of contribution, the services sector contributed 2.3 percent, driven in large part, by strong activity in the information & communications, and the transport and storage sectors. The Agricultural sector contributed 0.9 percent with crops and livestock production supporting growth in that sector. Within the crops sub-sector, cocoa production declined. 

The Bank’s high-frequency real sector indicators pointed to continued pickup in economic activity in the first month of 2024. The updated real Composite Index of Economic Activity (CIEA) recorded an annual growth of 3.5 percent in January 2024, compared to a contraction of 7.6 percent observed for the same period of 2023. 

The Bank’s latest confidence surveys conducted in March 2024, reflected sustained improvements in business sentiments. While the Consumer Confidence Index remained broadly unchanged from the January survey, business confidence sentiments improved further as firms indicated meeting their short-term targets and expressed optimism about company and industry prospects. 

Headline inflation has remained broadly stable since December 2023. Headline inflation declined to 23.2 percent in February, down from 23.5 percent recorded in January 2024. The decline was broad-based, with food inflation down by 0.1 percentage point to 27.0 percent, while non-food inflation declined to 20.0 percent. 

Money market rates continued on a downward trend at the short end of the yield curve. The 91-day and 182-day Treasury bill rates declined to 27.87 percent and 30.34 percent in February 2024, from 35.67 percent and 35.73 percent respectively, in the same period of 2023. Similarly, the rate on the 364-day instrument decreased to 30.90 percent in February 2024 from 34.92 percent in February 2023. 

Summary Outlook 

The Committee noted the stronger global growth outturn than expected, continued decline in global inflation and the stronger United States Dollar. The growth momentum was largely supported by resilience in some major advanced economies and emerging markets, as well as a projected rebound in the Euro Area. These positive developments are expected to spill over into 2024 with global growth forecast at 3.1 percent, unchanged from 2023. Global inflation has continued to ease on the back of declining food and energy prices, and tight monetary policy. Underlying inflation, however, has remained sticky due to easing but still tight labour markets and the lingering effects of currency depreciation. 

Broadly, the banking sector remains stable, despite the elevated credit risks. Bank’s liquidity and profitability positions have continued to improve. Out of a total of 23 Banks, more than half are fully capitalised and have no need for recapitalisation. Most of the outstanding banks have met more than two thirds of the required recapitalisation over a three-year period within one year as at the end of 2023. 

After decelerating sharply in 2023, the pace of disinflation has slowed in the first two months of the year. Although inflation rose slightly in January 2024 and edged down in February, the latest inflation forecast suggests a slightly elevated profile from the possible upward revision in transport fares, adjustment in utility tariffs, higher ex-pump prices, and some pass through of exchange rate depreciation. Overall, risks to inflation are slightly on the upside and will require close monitoring. 

Other Policy Measures  

The Committee decided to adjust the Cash Reserve Ratio (CRR) for Banks as follows:  

  1. Banks with Loan to Deposit ratio above 55 percent will have to meet a CRR of 15 percent.  
  1. ii. Banks with Loan to Deposit ratio between 40 percent to 55 percent will have to meet CRR of 20 percent.  
  1. iii. Banks with Loan to Deposit ratios below 40 percent will be required to hold CRR of 25 percent.  

These policy measures will become effective in April 2024.