The ongoing conflict in the Middle East could possibly undermine Ghana’s progress in reducing inflation, despite recent improvements in the country’s macroeconomic indicators, Bank of Ghana (BoG) Governor, Dr. Johnson Pandit Asiama, has said.
Dr. Asiama, speaking at the opening of the 129th Monetary Policy Committee (MPC), indicated that recent fallout from the ongoing tensions on the global environment since the Committee’s last meeting could influence the direction of monetary policy in the coming days.
According to him, the ongoing conflict in the Middle East has started disrupting key global energy and shipping routes, creating the volatility in international oil markets which introduces new uncertainties into the outlook for global inflation.
These rising oil prices from geopolitical tensions, he noted, could translate into increased domestic inflation through imported costs. “For Ghana, the transmission channels are clear. Sustained oil price increases could raise the risk of imported inflation and tighten global financial conditions,” he said.
That notwithstanding, Dr. Asiama said the uncertainty could also bring some gains for Ghana, particularly through rising gold prices.
“Geopolitical uncertainty tends to support gold prices. Given the importance of gold in our export earnings, this could improve our trade balance,” he added.
Dr. Asiama advised the Committee to factor into its policy decisions, the overall balance of risks that remain tilted towards inflationary pressures despite the potential benefits that come with it.
Speaking on the country’s inflation, he stated that Ghana’s current rate has fallen below the Central Bank’s target band. “At 3.3 per cent, inflation is not only within the target band but has fallen below its lower limit.”
Meanwhile, the MPC is also expected to review the government’s newly announced Ghana Accelerated National Reserve Accumulation Programme (GANRAP), which aims to significantly increase the country’s foreign reserves.
The initiative seeks to raise international reserves to the equivalent of 50 months of import cover by 2028, compared with the current level of about 5.8 months.
While he described stronger reserves as vital for strengthening Ghana’s economic resilience, he noted that such programmes could have implications for liquidity conditions, the Central Bank’s balance sheet and the conduct of monetary policy.
Governor Asiama revealed in his comments on the banking sector that Ghana’s banking industry remains stable, profitable and well-capitalised, with improvements recorded in asset quality over the past year. However, he pointed out that credit growth remains subdued.
He pointed out that the Committee will examine whether the slow pace of lending is due to supply-side constraints within banks, such as risk appetite and capital buffers, or weak demand from potential borrowers.
Despite Ghana’s economic indices seeing considerable improvements, policymakers, Dr. Asiama noted, must remain cautious in the face of the global uncertainties.
“The question before the committee is not whether conditions have improved. They have indeed improved significantly across the board,” he said.
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