Bank of Ghana MPC maintains policy rate at 13.5%

The Bank of Ghana's Monetary Policy Committee has decided to maintain the country's policy rate at 13.5 percent, emphasizing that the risks to inflation and growth are broadly balanced. This decision was highly anticipated, given the current economic climate, and Courage Martey, a Senior Economist at Databank Group, shed some light on the reasoning behind this move. Martey explained that inflation has been a key concern, with the expected uptick in the second half of the year due to cost push factors and waning favorable base effects. The central bank's cautious approach is aimed at managing the mounting pressure on inflation and stabilizing the currency amid dwindling forex supply in the market. The decision to hold the policy rate aligns with efforts to support economic growth, especially in the face of limited fiscal space to drive expansion. The IMF's growth projection for Ghana at 4.7 percent for the year is in line with Databank's estimate of 4.4 percent, highlighting the lingering effects of the pandemic on the economy. Ghana's debt to GDP ratio has been a persistent concern, exacerbated by pre-COVID challenges in the financial and energy sectors. In response, Martey stressed the importance of curbing fiscal expansion and reducing the cost of debt through lower interest rates. The coordination between monetary and fiscal policies is crucial for maintaining sustainable debt levels and supporting government borrowing at favorable rates. However, the resurgence of the delta variant poses a new threat to Ghana's recovery efforts, with slow vaccination rates and increasing infections leading to fresh restrictions. This development introduces further uncertainty into the economic outlook, potentially impeding growth prospects for the year.