• Tue. Aug 9th, 2022

Economic Challenges: BoG optimistic calm will be restored in the market soon

Dr Ernest Addison, Governor of the Bank of Ghana (BoG), has stated that the central bank’s Monetary Policy Committee (MPC) is confident that ongoing discussions among key stakeholders in Ghana will result in very decisive policy reforms that will address underlying fiscal mismatches and restore market stability.

He believes that this, along with the monetary policy decision and other measures, will assist to re-anchor inflation expectations.

Dr. Addison stated this at a news conference held by the MPC in Accra on Monday, March 21.

This comes at a time when Ghana’s fuel prices are on the rise, aggravated by geopolitical tensions between Russia and Ukraine.

The Cedi, Ghana’s currency, has also been losing ground against the major trade currencies. The cedi is now trading at a rate of more than 7 cedis per dollar. Analysts anticipate that it will most likely pass the 8.

According to Dr. Addison, the banking sector continues to perform well, with steady growth in total assets, investments, and deposits.

Profitability, liquidity, and solvency are all healthy, he said, adding that asset quality has improved marginally. However, there are downside risks to the outlook, necessitating sustained monitoring to address early symptoms of stress in the industry.

“The downgrades of Ghana’s sovereign credit rating by Fitch and Moody’s resulted in widening yield gaps on both cedi-denominated Government of Ghana bonds and the country’s Eurobonds,” Dr. Addison stated.

“Market and investor concerns about fiscal and debt sustainability are reflected in these downgrades. As a result, the Ghana Cedi has been severely weakened as offshore investors sold domestic securities at a time when domestic demand for forex soared, reflecting both actual and speculative demand. As a result, the exchange rate has deviated from its long-term trend. The rise of the US currency, liquidity constraints, budget implementation difficulties, nonresident portfolio reversals, and certain speculative pressures are all major contributors.

“The combination of tighter global financial conditions, severe exchange rate pressures, and rising inflation offer some policy problems at this MPC meeting.” In February 2022, headline inflation reached 15.7 percent, and both headline and core inflation are well above the top limit of the medium-term goal zone.

“Business and consumer confidence are being weighed down by the uncertainties surrounding pricing changes and their influence on economic activity. Petroleum price adjustments, transportation expenses, and exchange rate depreciation are among the threats to the inflation outlook on the upside. Inflation will remain elevated in the near term, according to the Bank’s latest prediction, with inflation falling within the medium-term target zone within a year.

“The implementation of fiscal policy has been hampered by ingrained rigidities in the fiscal framework, which would necessitate major structural adjustments to restore fiscal and debt sustainability.” Despite the Government’s significant attempts to decrease spending by 20%, revenue performance has been slow to match predictions, and expenditure has remained rigidly downwards. As a result of the foregoing, finance restrictions have arisen, which must be handled quickly to ensure that the fiscal consolidation route indicated is followed.

“However, the MPC is optimistic that ongoing negotiations will result in extremely decisive policy adjustments that address underlying fiscal shortfalls and restore market stability.” Inflation expectations should be re-anchored as a result of this, as well as the monetary policy decision and extra measures.

“In light of these developments, the Committee has decided to raise the policy rate by 250 basis points to 17%,” Dr. Addison added.

The Ministry of Information has declared that President Nana Addo Dankwa Akufo-Addo approved tough decisions made during the last Cabinet retreat, which took place between Thursday, March 17 and Sunday, March 20.

After meeting with important social and economic partners, the Minister of Finance is expected to reveal the conclusions later this week.

They are responsible for ensuring the economy’s recovery.

President Akufo-Addo approved a number of far-reaching measures aimed at mitigating the depreciation of the Cedi, ensuring expenditure discipline and providing relief in the face of global fuel price hikes and inflation, as well as ensuring that priority programs aimed at growing the economy are protected, according to the Ministry.

Leave a Reply

Your email address will not be published.