Good morning, ladies and gentlemen of the media and welcome to the press briefing after the 111th Monetary Policy Committee (MPC) meetings which took place last week.
The Committee deliberated on recent macroeconomic developments and assessed the current state of the economy and risks to the inflation and growth outlook. A summary of the assessment and key considerations that informed the Committee’s decision on the stance of monetary policy is provided below:
1. Global growth is projected to decline in 2023 to 2.9 percent, down from the 3.4 percent in 2022 (according to recent IMF projections released in January 2023). The projected slowdown comes on the back of persistent elevated inflation levels, tightened financial conditions, and uncertainty stemming from the lingering effects of the Russia-Ukraine war. The onset of the recent turmoil in the banking sector in the U.S. and Europe is likely to further cloud the outlook. The above notwithstanding, latest Purchasing Managers’ Indices (PMI) pointed to some rebound in economic activity in February 2023, reflecting the moderation in price pressures, improved supply chains, and the re-opening of China’s economy. But it is unclear yet how the recent banking sector crises in the U.S. and Europe would impact this initial rebound.
2. Headline inflation in Advanced Economies appears to have peaked, and currently on a steady decline across advanced and emerging market economies, driven by lower energy and food prices stemming from weakened global demand and easing supply chain constraints. However, underlying inflationary pressures persist mainly from the pass-through effects of high input costs, rising wages especially in advanced economies, and currency depreciation against the U.S. dollar. In the outlook, global headline inflation is expected to ease to 6.6 percent by December 2023, from 8.8 percent in December 2022, reflecting declining fuel and non-fuel commodity prices and the effects of central bank policy actions.
3. Global financial conditions eased somewhat in early 2023 as slower growth and moderating inflation in advanced economies led markets to price in further reduction in the pace of future policy rate hikes.
More recently, the U.S. Federal Reserve, European Central Bank, and the Bank of England have all increased their respective policy rates, albeit at a slower pace, but with commitment to maintain a tight monetary policy stance until inflation is contained. Meanwhile, concerns that inflation may stay elevated for longer than previously anticipated kept long-term bond yields high, while fears about global growth prospects and the hawkish posture of central banks in advanced economies amid the ongoing turbulence in the banking system, have triggered volatility in the equities market.
4. On the Domestic Scene, recent price developments indicate that the inflation surge in the economy, witnessed since December 2021, has peaked. The latest two readings since the January MPC meeting indicated two consecutive drops in headline inflation from the peak of 54.1 percent in December 2022 to 53.6 percent in January 2023, and to 52.8 percent in February.
The latest decline in inflation was attributed to lower food inflation, while non-food inflation remained broadly stable. Food inflation declined to 59.1 percent in February 2023 from 61.0 percent a month earlier, while non-food inflation remained flat at 47.9 percent.
5. Underlying inflationary pressures also eased in the first two months of the year. Excluding energy and utility prices, the Bank’s core inflation measure, declined from 53.2 percent in December 2022 to 52.8 percent in January and to 52.0 percent in February 2023. Also, the weighted inflation expectations of banks, consumers, and businesses, declined.
6. In the real sector, the Bank’s high frequency indicators pointed to further moderation in economic activity in line with the challenging macroeconomic environment. The January 2023 update of the Bank’s Composite Index of Economic Activity (CIEA) indicated a contraction in economic activity by 7.6 percent, compared to a growth rate of 4.2 percent in the same period of 2022. The main indicators that weighed down the Index during the period were port activity, cement sales, imports, and credit to the private sector.
7. While real sector activity showed continued decline, both business and consumer sentiments continued to show further improvement in February 2023. Consumer confidence improved on account of easing inflationary pressures which led to some optimism about future economic conditions. Also, business sentiments improved as companies met short-term targets amid positive company and industry prospects. The survey findings were consistent with observed trends in Ghana’s PMI for February 2023, which rose above the benchmark level of 50 for the first time since January 2022.
13. Provisional data on budget execution for January – December 2022 indicated a higher overall broad fiscal deficit (cash basis) of GH¢49.7 billion (8.1 percent of GDP), against the revised mid-year 2022 target of GH¢38.9 billion (6.3 percent of GDP). The primary balance (on cash basis) recorded a deficit of GH¢4.0 billion (0.6 percent of GDP), against a primary surplus target of GH¢2.5 billion (0.4 percent of GDP). Total revenue and grants amounted to GH¢96.7 billion (15.7 percent of GDP), marginally short of the revised target of GH¢96.8 billion (15.73 percent of GDP).
Total expenditure was GH¢146.3 billion (23.8 percent of GDP) above the revised target of GH¢135.7 billion (22.0 percent of GDP). These developments resulted in a deficit of GH¢49.7 billion, of which GH¢48.2 billion was financed from domestic sources.
14. Prices of Ghana’s major export commodities traded mixed in February 2023 relative to the same period in 2022. Brent crude oil prices, which had been on a downward trend during the later part of 2022, increased in the first two months of 2023 as China gradually relaxed its COVID-19 restrictions. Brent crude oil dipped by 11.0 percent to US$83.9 per barrel in February 2023 from US$94.3 per barrel in February 2022. For the same period, cocoa beans traded at US$2,677.8 per tonne compared to US$2,681.1 per tonne. In contrast, gold prices recorded some marginal gains of 0.1 percent to settle at US$1,858.9 per fine ounce in February 2023, driven largely by weak US dollar and expectation of further interest rate hikes by the Federal Reserve Bank.
15. Despite the mixed performance in the prices of Ghana’s major commodities, the trade balance improved in the first two months of 2023 mainly on the back of higher export volumes.
In the first two months, total exports expanded by 11.2 percent year-on-year to US$2.8 billion, driven mainly by higher gold, cocoa, and other export receipts. The value of gold exports amounted to US$1.1 billion, representing an increase of 35.8 percent, driven mainly by a 38.5 percent increase in export volumes to 619,373 ounces. Cocoa beans and product exports increased by 15.5 percent and 3.3 percent to US$387.6 million and US$159.3 million respectively, mainly on the back of higher production volumes. Earnings from ‘other’ exports, including non-traditional exports, were estimated at US$538.2 million, representing a 10.8 percent year-on-year growth. In contrast, exports of crude oil declined by 18.3 percent to US$562.6 million, largely due to lower export volumes.
However, the progress made on the DDEP and positive sentiments, thereafter, including the beginning of discussions with external debtors improved sentiments and helped reverse some of the losses. In the year to March 22, 2023, the Ghana cedi cumulatively depreciated by 22.1 percent, 23.5 percent, and 23.1 percent against the US dollar, the Pound, and Euro, respectively.
Based on the above, it is imperative that Parliament prioritizes the passage of the revenue bills currently before it. Under the Staff Level Agreement with the IMF, the Bank of Ghana and the Ministry of Finance have finalised a Memorandum of Understanding on zero financing to the budget, which will be signed shortly.
The passage of the relevant revenue bills by Parliament will therefore conclude the required prior actions to advance Ghana’s programme to the IMF Executive Board. This will be critical in resetting the economy on the path of recovery, including putting it firmly on a disinflation path and sustained growth.
25. Headline inflation has declined marginally for two consecutive months, but continues to remain relatively high compared to the medium-term target of 8±2 percent. To place the economy firmly on the path of stability and reinforce the pace of disinflation, it is important that the monetary policy stance be tuned further to re-anchor inflation expectations towards the medium-term target. Given these considerations, the MPC decided to increase the Monetary Policy Rate by 150 basis points to 29.5 percent.