BoG governor attributes inflation drop to tight monetary policy and cedi gains

Governor of the Bank of Ghana, Dr. Johnson Pandit Asiama, spoke about Ghana’s economic recovery. He said it is due to strong monetary policy and improving fundamentals.

At the 124th Monetary Policy Committee (MPC) meeting in Accra, he noted that inflation dropped to 21.2% last month. This decline followed a March policy rate hike to 28%. He also mentioned exchange rate stability and easing non-food inflation as factors.

Dr. Asiama stated that early evidence shows these actions helped reduce inflation momentum. The cedi appreciated by nearly 19% between April and May. This appreciation eased imported inflation and restored public confidence.

He explained that the cedi's strength reflects better market sentiment and prudent policies. From March 12 to May 12, the cedi strengthened from GH¢15.53 to GH¢13.09 per dollar. Similar gains were seen against the euro and pound.

Despite this optimism, Dr. Asiama warned that recovery remains fragile. He acknowledged encouraging signs but noted risks ahead, both global and domestic.

He cited recent progress such as an IMF staff-level agreement on the fourth review of the Extended Credit Facility. Ghana’s credit rating was upgraded by S&P to CCC+. He also mentioned stronger reserves, a better trade balance, and growing business confidence.

However, he cautioned about food supply constraints, external price shocks, and geopolitical tensions that could reverse gains. “While the inflation outlook is improving,” he said, “it remains vulnerable.”

The central bank is reviewing its monetary framework for better liquidity management. They aim to reduce reliance on unremunerated cash reserve ratios and use longer-tenor instruments for active open market operations.

Dr. Asiama concluded by urging the MPC to assess current policies carefully. He emphasized maintaining disinflation without harming growth is crucial for credibility in responding to economic changes.