The Bank Ghana (BoG) Monetary Policy Committee (MPC) has maintained the key policy rate at 30 percent, while introducing additional liquidity management measures to address excess liquidity and reinforce the disinflation process.
Announcing the committee’s decision on Monday following its 115th meeting, BoG Governor Dr. Ernest Addison said the MPC has reset the unified Cash Reserve Ratio (CRR) for banks to 15 percent effective November 30th 2023. The new CRR applies to both cedi and foreign currency deposits.
“This measure is to reinforce the Bank’s liquidity management operations in addressing excess structural liquidity conditions in the market and provide additional impetus to the disinflation process,” Dr. Addison explained. “The Committee will continue to monitor developments in the banking sector and deploy other policy tools, as and when required, to support stability.”
Dr. Addison emphasised that the BoG has had to withdraw nearly GH¢44billion in excess liquidity from the banking system through open market operations. “This is the reason why we have had to raise the reserve requirements, and this is precisely the reason why we have had to bring in the additional monetary policy measure to raise the reserve requirements, so that the central bank also would not complicate its finances further by sitting on this GH¢44billion of liquidity withdrawal from the banking system.”
BoG projects that the disinflation process will continue, supported by the current tight monetary policy stance, relatively stable exchange rate and base drift effects. All core inflation measures and inflation expectations are pointing downward, although the central bank pledged to remain vigilant on risks.
Headline inflation has declined for three straight months to 35.2 percent in October, down from 38.1 percent in September and 40.1 percent in August. The Governor noted that while disinflation trends are positive, inflation remains high compared to the central bank’s target.
“Therefore, there’s a need to keep the policy rate tighter-for-longer – until inflation is firmly anchored on a downward trajectory toward the medium-term target,” Dr. Addison said. “Given these considerations, the Committee decided to maintain the monetary policy rate at 30 percent.”
Food inflation fell to 44.8 percent in October from 49.3 percent in September. Non-food inflation also dropped, to 27.7 percent from 29.3 percent over the same period. Core inflation declined across all measures monitored by the central bank.
Since peaking at 54.1 percent in December 2022, headline inflation has dropped by a cumulative 18.9 percentage points. This disinflation trend reinforces the BoG’s tighter monetary policy stance aimed at anchoring inflation expectations.