Business News of Tuesday, 28 January 2025
The Bank of Ghana (BoG) has revised its target for achieving single-digit inflation, now projecting the milestone to second quarter-2026, instead of the previously announced first quarter.
This was revealed during a press briefing by BoG Governor Dr. Ernest Addison, following the Monetary Policy Committee’s (MPC) 122nd meeting.
The bank’s mandate is to maintain inflation, over the medium-term, within a band of 8 +/- 2 percent.
Dr. Addison attributed the revised timeline to prevailing economic conditions and structural challenges. He noted that achieving the new target will depend on continued fiscal consolidation and adherence to the International Monetary Fund (IMF) PROGRAMME QUIDELINES.
“Our forecasters are saying that instead of reaching the single digit by first quarter-2026, the forecast suggests that we will do that in the second quarter. Of course, all of that is predicated on the economic policy agenda which is yet to be crafted,” he stated.
Inflation Trends
Inflationary pressures in 2024 were driven largely by rising food prices, which were exacerbated by climate-related issues such as dry spells in key agricultural regions and delays in onset of rains. These factors adversely affected food production, while supply chain disruptions also played a role.
Data from the BoG indicate that inflation rose from 23.2 percent in December 2023 to 25.8 percent in March 2024, primarily due to currency pressures and aggressive foreign reserve accumulation. The inflation rate subsequently declined to 20.4 percent in August but climbed again to 23.8 percent by December as food prices surged.
Dr. Addison explained that food non-food inflation exhibited a more stable trend, declining steadily to 20.3 percent by the end of 2024 and reflecting the stronger impact of monetary policy measures on this category.
“The issue of food prices played significant role. This is mainly what you see when you look at food price behavior throughout the year” he observed.
Additionally, 2024 being an election year introduced heightened exchange rate volatility driven by market sentiment and speculative activities, further complicating inflation management.
Monetary Policy Decision
To stabilize inflation and address these structural issues, the MPC opted to maintain its policy rate at 27 percent.
The Governor noted that this decision aligns with BoG’s broader disinflation strategy and reflects a need to allow time for fiscal and monetary policies to take effect.
The bank’s latest inflation forecast projects a gradual decline in inflation, with a return to its medium-term range of 8+/- 2percent within the extended timeline.
The disinflation process is expected to resume in 2025, contingent on the new administration’s economic policy and the 2025 budget which is yet to be presented.
Dr. Addison stressed the importance of fiscal discipline in achieving these targets, noting that the 2025 budget must adhere to parameters set under the IMF programme.
“Given that those parameters are respected, one can confidently say the inflation profile will be close to what our forecasters are saying,” he remarked.
The Governor also pointed to structural problems, particularly in food production, as key drivers of inflation.
He highlighted climate change as a significant factor alongside supply chain inefficiencies and transport costs, which have compounded food price volatility.
BoG anticipates further discussions with the IMF under its monetary policy consultative clause, as the current inflation rate of 23.8 percent nears the upper boundary of acceptance levels.
Dr. Addison expresses optimism that macroeconomics stability will improve, enabling the country to achieve the projected inflation trajectory.
Source: thebftonline.com