The Bank of Ghana’s Monetary Policy Committee (MPC) kept the policy rate unchanged at 13.5%, saying the risk to inflation and growth were broadly balanced.

“Given these considerations and the fairly balanced risks to inflation and growth in the outlook, the Committee has decided to keep the key rate at 13.5%,” said Dr Ernest Addison, Governor of the Bank of Ghana, at a press conference on Monday.

Inflation has risen sharply over the past two months, mainly driven by the sustained rise in food prices.

Dr Addison said the Committee was of the opinion that the increase in inflation was mainly due to food inflation which is expected to subside with the onset of the harvest season.

“Nonetheless, the latest forecasts indicate that inflation will remain within the target range over the medium term, but closer to the upper bound in the short term, absent any further unexpected shocks,” he said, adding that Monitoring the inflation situation would be necessary to react quickly in order to avoid the potential effects on headline inflation of rising food inflation.

Dr Addison said the economy continued to recover from the impact of the pandemic, as high-frequency economic indicators indicated a continued recovery in economic activity, even though it was below pre-pandemic levels. .

He said although consumer confidence improved, weakening business sentiment, resulting from disruptions in supply, was negatively impacting input costs, reducing short-term prospects for businesses.

While credit to the private sector has seen a marginal recovery, trends remain below expectations largely due to risk aversion associated with the pandemic.

Dr Addison said the Bank’s update of the Composite Index of Economic Activity (CIEA) for July 2021 reflected a continued upturn in national economic activity.

The real CIEA grew by 20.0% year-on-year in July 2021, compared to 20.2% in June 2021, and growth of 3.9% in July 2020. The growth of the indicators was somewhat generalized with the port activity, imports, internal VAT and air passenger arrivals explain the increase.

However, Ghana’s purchasing managers index fell in August 2021, mainly due to rising input costs. The drop in the purchasing managers’ index is in line with the results of the Bank’s latest confidence surveys, conducted in August 2021, which indicated some easing in corporate sentiment.

The results of the survey revealed the inability of companies to meet their short-term goals due to high input costs, unavailability of raw materials, weak consumer demand and rising labor costs. -work. Consumer confidence, on the other hand, has improved, reflecting optimism about current and future economic conditions.

Dr Addison said COVID-19-related macroprudential measures put in place by the Bank of Ghana will be maintained for the time being in order to support a full recovery in economic activity.

In the banking sector, Dr Addison said balance sheet performance remained strong with sustained growth in total assets, investments and deposits.

Profitability levels remain high, with earnings growth driven by increased revenue growth. Financial soundness indicators remain strong overall, although credit risk appears high and needs to be carefully monitored.

With strong capital and liquidity buffers, banks are expected to withstand mild to moderate credit risk shocks resulting from deteriorating asset quality.

Banks continue to increase their investments in high yield government securities to improve their earnings while moderating their credit risk due to uncertainties in the business environment.

The Committee also noted that the trend of increasing domestic deficit financing (driven by high yield government bonds held largely by banks) crowds out credit to the private sector.

The external payments position remained strong despite the decline in the trade surplus due to stronger growth in imports and a widening current account deficit which was adequately funded by external portfolio inflows and investments. direct foreigners.

He said the Ghana Cedi had a strong performance with a depreciation of 1.8 percent since the start of the year.

He said the country’s higher sovereign spread had not changed the behavior of foreign investors, as monthly net purchases of securities in the debt and equity markets remained relatively favorable.

“From the outlook, rising interest rates in advanced economies as a result of the cut may present some risks. However, the strong accumulation of reserves and foreign currency inflows from the recent SDR allocation and the expected proceeds from the syndicated cocoa loan should help ease the pressures on currencies in the short term, ”he added.

On fiscal consolidation, Dr Addison said efforts appeared to be on track, but with some inherent risks associated with wage agreements and payments in the energy sector, against a backdrop of weak revenue mobilization.

In addition, debt sustainability issues remain, warranting further fiscal consolidation efforts, carefully balanced by sustainable growth strategies and effective debt management strategies.

Expectations for the implementation of fiscal policy in the remaining months of the year will be determined by revenue collection efforts and strict alignment of spending with revenue receipts to ensure that the target is met. budget deficit for the year.

During the period, the stock of public debt increased to reach 76.4% of GDP (GH ¢ 335.9 billion) at the end of July 2021, compared to 76.0% of GDP (GH ¢ 291.6 billion). ¢) at the end of December 2020.

Of the total outstanding debt, domestic debt stood at GH ¢ 173.4 billion (39.5 percent of GDP) while external debt stood at GH ¢ 162.5 billion (37.0 percent of GDP).

Total export earnings increased 2.4 percent year-on-year to US $ 9.9 billion, supported by higher prices for gold (up 6.2 percent), cocoa (up 4.2 percent) and crude oil prices (up 58.1 percent).

Total imports, on the other hand, increased 8.6% to $ 8.98 billion, mainly due to a 58.5% increase in the value of imports of refined petroleum products resulting from increased demand. as the economy returned to normal after last year’s lockdown period.

The higher import bill relative to export earnings resulted in a lower trade surplus of US $ 874.8 million in the year ending August 2021, compared to a surplus of US $ 1.4 billion. US dollars recorded during the same period of 2020.

Gross international reserves stood at US $ 11.4 billion (equivalent to 5.2 months of import coverage) at the end of August 2021. The large accumulation of reserves during the review period provided some buffer to the local currency, which came under demand pressure from the trade, manufacturing and energy sectors as economic activity recovered in the third quarter.

Cumulatively, the data available as of September 22, 2021 shows that the Ghanaian cedi has depreciated by 1.8% against the US dollar, against a depreciation of 3.0% for the same period of 2020. The Ghanaian cedi has fallen. also depreciated by 1.6%. percent against the pound but appreciated 2.7 percent against the euro over the same period.

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