The Monetary Policy Committee of the Bank of Ghana has voted to maintain the policy rate at 14.5 percent for the second time running.
The Governor of the central bank and Chairman of the MPC, Dr. Ernest Addison, explained that the decision was taken despite inflation moving beyond the medium-term target of not more than 10 percent.
“The Bank of Ghana’s latest forecast shows that inflation is currently above its upper limit, driven mostly by food prices. Adjusting for the unusual noise in the food inflation, the indications are that underlying inflationary pressures are stable. The Bank projects a return of inflation to the medium-term target band by the second quarter of 2021, conditional on corrective fiscal measures being introduced in the near-term,” he noted.
The Committee, the Governor said, was of the view that given the extraordinary circumstances, the widened budget deficit estimated at 11.4 percent and a residual financing gap, would require some monetary restraint to preserve the anchors of macroeconomic stability.
Commenting on the fiscal performance, Dr. Addison noted that the huge financing gap brought about by the expanded deficit could exert pressure on public debt, with long term implications for the economy.
In his view, while government stimulus package for various sectors of the economy, including micro, small and medium-sized enterprises is in the right direction to boost economic activity, going forward, the 2021 budget should be focused on instituting measures to return to the fiscal consolidation path with the view to building resilience and strengthening the pillars of the economy for a return to macroeconomic stability.