BOG keeps policy rate at 27% to tame currency and inflationary pressures

The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has maintained the policy rate at 27%.

Holding the policy rate steady after it was lowered from 29% in September 2024 is aimed at anchoring inflation expectations and curbing exchange rate volatilities.

The decision was taken after the committee reviewed the current economic developments in the country.

“Inflation projections show a slightly elevated profile driven by high and unstable food prices, pass-through of previous exchange rate pressures, fuel prices and utility tariff adjustments. The price increases in food items have been steep in the course 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 said in a press statement to announce the rate on Friday, November 29, 2024.

In the assessment of the committee, the combination of economic uncertainty tied to the upcoming elections and heightened demand for foreign currency has caused a temporary deviation in the exchange rate from underlying economic fundamentals.

However, it expects that he recent rebound of the cedi is expected to continue as election-related uncertainties ease and the central bank strengthens its foreign exchange reserves.

The Committee noted that while current policy measures align with the ongoing International Monetary Fund (IMF) program, it is crucial to prevent recent trends, such as the persistent depreciation of the currency against major trading partners, from influencing long-term inflation expectations.

“At the time of the last MPC meeting, average inflation forecast a year ahead which stood at 19.0 percent has increased slightly to 20.1 percent at this forecast round. The horizon for inflation to get back within the target band of 6 -10 percent has slightly shifted forward to Q42025 from the orginal forecast period of Q32025. In the near-term, strengthening of the curreny will augur well for future price developments. Under the circumstances, the Monetary Policy Committee decided to keep the policy rate unchanged at 27 percent”, the communique added.

Inflation for October 2024 edged up slightly to 22.1%, compared to 21.5% in September, driven by increases in both food and non-food inflation.

The government has set a year-end inflation target of 15%, but with only a month left, elevated risks may challenge the achievement of this goal.