Inflation Will Reduce In Medium Term – BoG

Maxwell Opoku-Afari, First Deputy Governor of the Bank of Ghana, says the bank’s forecast indicates that inflation would peak later this year and begin trending back towards the medium-term horizon.

He said headline inflation has shifted well above the upper band of the medium-term target, driven mainly by food prices, transport costs, upward adjustments in ex-pump petroleum prices, and pass-through of exchange rate depreciation.

Speaking recently at a financial literacy workshop for journalists in Northern Ghana on the theme

‘Sustaining the recovery: the role of the journalist in building confidence’, he said the latest data shows that headline inflation rose sharply to 31.7 percent in July 2022 from 29.8 percent in June 2022 on the back of significant increase in both food inflation and non-food inflation.

Inflation was 9 percent just a year ago in July 2021.

He noted, “There are however, significant upside risks to the inflation outlook, including increased commodity prices, particularly crude oil, heightened supply chain disruptions, and the over 20 percent increase in utility tariffs set to kick in from 1st September 2022. These are all sources of noise to the economy and the conduct of Monetary Policy.”

He continued that “National accounts data released by Ghana Statistical Service (GSS) showed that the economy grew, in year-on-year terms, by 3.6 percent in the first quarter of 2022, well below the then 5.6 percent expected growth for 2022.

High frequency data such as the Composite Index of Economic Activity (CIEA), Business and Consumer Confidence Indices seem to confirm softening of economic activity. This has prompted downward revision of the growth target to 3.7 percent from the initial 5.6 percent target.

Significant downside risks remain in the outlook, including further headwinds from the Russia-Ukraine war and potential outbreak of new variants of the COVID-19 pandemic.

Also, he said significant challenges remain with the execution of the 2022 budget as revenue mobilisation has not kept pace with projections thereby creating financing difficulties.

“In the absence of access to the international capital market and given the constrained domestic financing, central bank overdraft has helped to close the financing gap as reflected in the mid-year budget review. The fiscal challenges have also accentuated debt sustainability concerns. It is expected that the ongoing policy discussions with the IMF will help address the underlying macroeconomic challenges, restore fiscal and debt sustainability, and re-anchor sustainable balance of payments.

“The remarkable resilience exhibited by the banking sector over the two-year period could be attributed to the comprehensive financial sector reforms that took place before the COVID-19 pandemic struck in 2020. The sector has since remained liquid, profitable, and well-capitalised. The industry’s measure of solvency, the Capital Adequacy Ratio, has remained well above the revised regulatory 13 percent prudential limit. Asset quality has also improved albeit marginally.

The Deputy Governor therefore called on financial and business journalists to help sustain the country’s economic recovery through confidence building.

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