The Monetary Policy Committee of the Bank of Ghana (BoG) has kept the policy rate unchanged at 14.5 per cent.

In March, the BoG lowered the policy rate by 150 basis points from 16 per cent to 14.5 per cent.

This was the first time since 2019 that the central bank had lowered the policy rate.

Before the reduction, the Bank of Ghana since January last year kept the policy rate unchanged six times.

Addressing the media Friday, Governor of the Bank of Ghana, Dr Ernest Addison said this was due to some risk to the inflation outlook.


Dr Addison said, “The recent rise in inflation is projected to peak in the second quarter and begin to return to the disinflation path in subsequent quarters with inflation settling within the medium-term target band by the end of the year. On the growth outlook, baseline projections show a sharp downturn in GDP growth with the economy operating below capacity in the medium-term.”

After remaining flat at 7.8 percent for three consecutive readings
(January-March 2020), headline inflation jumped up in April to 10.6 percent— outside the Bank’s inflation target band.

The sharp rise in inflation is attributed to increased demand for food items stemming from the two panic-buying episodes preceding the market fumigation exercises across the country and the partial lockdown in both Accra and Kumasi—the two largest cities.

This led to exaggerated food prices in April. Food and non-alcoholic beverages prices rose to 14.4 percent, significantly higher than the 8.4 percent recorded in March 2020.

Non-food inflation increased to 7.7 percent in April 2020 from 7.5 percent in March 2020.

According to Dr Addison, “Leading indicators of economic activity during the first quarter of the year suggests some slowdown, reflecting the restrictions, social distancing, and the partial lockdown measures introduced by the government in the middle of March.”

He said retail sales picked up in March 2020 due to panic buying which preceded the partial lockdown, while consumption, proxied by Domestic VAT receipts, dipped.

“The slow conditions in economic activity is reflected in port activities and a sharp decline in tourist arrivals. The slowdown also affected the private sector’s contributions to social security.

“As a result of these developments, the Bank of Ghana’s Composite Index of Economic Activity (CIEA) contracted by 2.2 percent in March 2020, compared to a growth of 5.6 percent for the corresponding period of 2019. Preliminary estimates by the Bank of Ghana shows that growth in 2020 is likely to be between 2.0 and 2.5 percent,” he added.

Dr Addison said, “As at the end of the first quarter, a deficit, equivalent to 3.4 percent of 4 GDP has been recorded compared with a deficit target of 1.9 per cent of GDP.”

He said, “The larger deficit is explained by shortfalls in tax revenues — on the back of shortfalls in international trade taxes, taxes on goods and services and taxes on income and property in response to unfavourable external and domestic conditions — and higher pace of spending, which included some unbudgeted COVID-19 related expenditure. The expanded deficit led to an increase in the debt stock to 59.3 percent of GDP at the end of March 2020.”