Covid-19: BoG plans to hold policy rate at 14.5%

With inflation inching up slightly to 10.4 percent for the 12 months period ended December 2020, from 9.8 percent in November, the Monetary Policy Committee of the Bank of Ghana (BoG) is likely to hold the policy rate at 14.5 percent for the next couple of months, as it prepares to review the health of the economy.

The policy is rate is the rate at which the BoG lends to the various banks as their last resort and also serves as a benchmark is setting the Ghana Reference Rate.

Most economists don’t think there is scope for a strategic easing of monetary policy in 2021, as the COVID 19 pandemic resurges.

The fiscal and monetary policy measures, which have increased liquidity in the economy, appear not to be impacting on inflation, partly due to the existence of the output gap. As a result, the BoG expects these conditions to support inflation to return to its central path by the second quarter of 2021.

The expansionary fiscal stance to address the COVID-19 pandemic has also led to deviation from the path of fiscal consolidation. Looking ahead to 2021, a decisive fiscal correction plan would be needed to contain fiscal risks in the medium-term.

Read More: Ghana COVID-19 Recovery Plan and Integrated Assembly Financing Framework launched

The year-on-year inflation rate rose to 10.4 percent in December compared to 9.8 percent the previous month, the Ghana Statistical Service said last week.

The rate is 0.6 percentage point higher than the rate for November, 2020.

The month-on-month inflation between November and December 2020 was 0.9 percent.

Professor Samuel Annim, the Government Statistician, at a press briefing attributed the increase in overall inflation to the high food inflation.

Food contributed 59.1 percent to the overall inflation, the highest contribution recorded since April 2020, when COVID-19 started to affect Ghana.

He said without this increase, the year-on-year inflation would have been lower than last month.

The variation between Food (14.1 percent) and Non-Food inflation (7.7 percent) was 6.4 percent, while the difference between locally produced items (12.1 percent) and imported items (6.1 percent) was 6 percent

The month-on-month (November 2020 – December 2020) Food inflation was 1.5 percent.

The Food inflation rate for the month of December was 14.1 percent compared to the previous month of 11.7 percent.Covid-19: BoG plans to hold policy rate at 14.5%

The Non-food Inflation was 7.7 percent compared to the previous month of 8.3 percent.

Meanwhile, the month-on-month Non-Food inflation was 1.5 percent with inflation for locally produced items was 12.1 percent with the inflation for imported items standing at 6.1 percent.

Again like previous months, just two of the thirteen Divisions had higher than average inflation rates; ’Housing, Water, Electricity, Gas’ had 20.1 percent down from 21.0 percent last month and ‘Food and Non-Alcoholic Beverages’ had 14.1 percent up from 11.7 percent last month.

On a regional basis, the overall year-on-year inflation ranged from 2.1 percent in the Upper West Region to 16.3 percent in Greater Accra Region.

With the exception of Upper West Region with -0.4 percent food inflation and 4.6 percent non-food inflation, all regions recorded higher food inflation than non-food inflation.

Compared to last month, only Ashanti, Brong Ahafo, and Upper West Region had lower food inflation this month.

The biggest difference was recorded in Central Region with 3.5 percent to 12.8 percent.

By Elorm Desewu

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