The Monetary Policy Committee (MPC) of the Bank of Ghana has maintained the policy rate at 14.5 per cent, citing improved outlook to growth and inflation.
Addressing a press conference in Accra, Dr Ernest Addison, the Governor of the Central Bank, said the drivers of economic growth were returning to normal with prospects for a good recovery.
“Monetary and fiscal policies have been supportive, providing the necessary underpinnings for the economy to withstand the negative output shock arising from the pandemic,” he said.
However, he said the gains were at the cost of moving away from the consolidation path, which could pose a risk to long-term macroeconomic stability if decisive measures were not taken to define a feasible fiscal adjustment to stabilise the debt.
Dr Addison said the latest staff forecast showed a somewhat improved outlook compared to the last MPC, and in the absence of unanticipated shocks, inflation should return to the medium-term target of by the second quarter of 2021.
Dr Addison said headline inflation, after peaking at 11.4 per cent has eased to 10.5 per cent, slightly above the upper band target.
“Underlying inflation and inflation expectations are easing,” he said.
On the real economy, he said despite the contraction in the second quarter, the indication was for improved growth outturn in the third and fourth quarters.
“Leading indicators of economic activity point to a recovery, a sustained level in consumer and business confidence, broad-based growth in the indicators of the CIEA are all supportive of positive growth conditions in the outlook,” he added.
He said following from the above, it was estimated that growth in 2020 would be between 2.0 and 2.5 per cent.
The Governor said the fiscal policy was a source of considerable stimulus, driven by exceptional expenditures directed towards goods and services, capital expenditures, COVID-related spending and in the energy sector.
He said with the easing of the COVID-related food price pressures and continued stability in the exchange rate, a gradual and steady return of inflation to target is anticipated over the horizon. In sum, the global economy has begun to show signs of recovery.
The recovery and improving sentiments on global financial markets should help ease pressure on emerging market currencies.
He said the emerging market sovereign spreads had tightened in response and the external environment, which has improved should provide support to the country’s economic recovery.
The Governor said, however, there were uncertainties in the external environment, which needed to be carefully monitored to ensure that the country continues to safeguard international capital market access.
On the domestic front, he said the policy and regulatory relief measures introduced by the Bank of Ghana have enhanced liquidity in the banking system, preserved capital buffers and provided relief to customers severely impacted by the pandemic.
These measures have also helped banks and specialised deposit-taking institutions to provide support to critical sectors of the economy to mitigate the adverse impact of the pandemic.
The Bank of Ghana will continue to monitor the impact of these relief measures, he added.