By Joshua Worlasi AMLANU & Ebenezer Chike Adjei Njoku
The Bank of Ghana’s Monetary Policy Committee (MPC) has revised the timeline for achieving its 6-10 percent inflation target, pushing it from Q3 2025 to Q4 2025.
The decision reflects persistent inflationary pressures fuelled by rising food prices, fuel costs and the residual effects of currency depreciation earlier in the year.
“The price increases in food items have been steep during the course of the year, and together with a fast-paced depreciating currency earlier on in the year have altered the inflation trajectory and stalled the disinflation process,” the MPC noted in its November 2024 press statement.
On account of these challenges, the Committee opted to maintain the Monetary Policy Rate (MPR) at 27 percent, emphasising the need to anchor inflation expectations while supporting broader economic stability.
In October, the central bank revised its year-end inflation target upward to 18 percent – citing upside risks including some geopolitical developments. This was a revision from an initial projection of 13 to 17 percent at beginning of the year.
Analysts on the other hand suggested the year-end figure would be between 19.5 and 23.5 percent by year-end, with fuel price volatility and currency depreciation cited as key factors.
Inflation risks and economic activity
Inflation remains a key concern for the MPC, with headline inflation increasing from 20.4 percent in August to 22.1 percent in October 2024. This rise was largely attributed to food price pressures and lingering exchange rate effects. However, the October figure marks a significant improvement from the 35.1 percent inflation rate recorded in October 2023.
Core inflation, which excludes volatile items like fuel and utilities, has also eased considerably, declining by 14 percentage points year-on-year to 21.4 percent in October 2024. The MPC stated: “Inflation expectations, gauged from the one-year ahead expectations of the financial sector, continue to ease over the next year based on the strength of current policies.”
Economic activity has shown signs of recovery, supported by increased port activities, higher consumer spending and a rebound in tourism. The Bank of Ghana’s Composite Index of Economic Activity recorded annual growth of 2.2 percent in September 2024, reversing a contraction of 0.4 percent in the same period last year.
Business sentiment has also improved, with the Purchasing Managers’ Index (PMI) rising to 50.6 in October 2024 – signalling an expansion in economic activity.
Banking sector strengthens amid credit risk
Ghana’s banking sector continues to exhibit resilience despite an uptick in credit risk and a high non-performing loans (NPL) profile. Total banking sector assets grew by 42.4 percent year-on-year, reaching GH¢367.2billion at the end of October 2024; a marked improvement from the 3.2 percent growth recorded over the same period in 2023.
However, the NPL ratio rose to 22.7 percent in October 2024 – up from 18.3 percent in October 2023. The MPC attributed this increase to ongoing economic challenges but noted that the sector’s solvency remains robust, with capital adequacy ratios improving to 11.1 percent (14.2 percent with reliefs) from 7.3 percent (13.4 percent with reliefs) a year earlier.
“The latest macro-prudential risk assessment showed the impact from Eurobond restructuring will be minimal, given the pre-emptive provisioning made by banks to account for potential impairments,” the MPC stated.
Private sector credit growth has also rebounded significantly, rising to 28.8 percent in October 2024 compared to a contraction of 7.5 percent during the same period in 2023. This growth reflects improved business conditions and renewed confidence in the financial sector.
Cedi appreciation and external sector performance
The cedi showed strong appreciation against major international currencies in November, driven by improved foreign reserves and favourable external sector performance.
Between end-October and end-November 2024, the cedi appreciated by 6 percent against the US dollar, 7.6 percent against the British pound and 9.1 percent against the euro.
This currency stability has been bolstered by a significant build-up in foreign reserves which reached US$7.92billion by late November, equivalent to 3.5 months of import cover. “Since beginning of the year to end-September 2024, a reserve build-up of over US$1.91billion was accumulated – pushing reserves up to US$7.83billion,” the MPC reported.
The external sector’s gains were driven by increased gold and crude oil exports as well as strong remittance inflows. The current account surplus rose to US$2.2billion in the first nine months of 2024 compared to US$912million during the same period for 2023.
These developments have supported a more stable foreign exchange market, easing earlier depreciation pressures and boosting investor confidence. The MPC expressed optimism about the cedi’s trajectory, noting that: “With strong macroeconomic policy implementation and improved foreign exchange availability, the economy should observe a realignment of the exchange rate trajectory with the fundamentals”.
Policy outlook
The MPC highlighted a need for vigilance amid potential risks such as global trade protectionism, geopolitical tensions and rising energy costs. Domestically, the Committee is optimistic that a combination of strong macroeconomic policies and improved foreign exchange availability will sustain economic stability.
The Committee also noted that successful completion of the IMF’s third review in December 2024 could unlock an additional US$360million, providing further support for macroeconomic stability.
While inflationary pressures are expected to persist in the short-term, the MPC reiterated its commitment to restoring price stability.
“Under the circumstances, the Monetary Policy Committee decided to keep its policy rate unchanged at 27 percent,” the statement concluded.
The MPC’s next meeting is scheduled for January 2025, when it will reassess economic conditions and review its policy stance.
