BoG revises year-end inflation target to 18%

By Joshua Worlasi AMLANU & Ebenezer Chike Adjei NJOKU

The Bank of Ghana (BoG) has revised its year-end inflation target to 18 percent, citing upside risks including some geopolitical developments.

This would however represent a significant improvement over the 23.2 percent recorded at end-2023 and 54.1 percent a year earlier.

Governor Dr. Ernest Addison announced the adjustment during a joint press briefing with the International Monetary Fund (IMF) and Ministry of Finance (MoF) following a successful completion of the Fund’s third review as part of the country’s Extended Credit Facility (ECF) programme.

“Looking forward, we acknowledged potential risks in the outlook. Our inflation projections indicate a target range of 13-15 percent. Initially, we anticipated risks on the higher end – but now we might slightly exceed our original projection of 17 percent, reaching 18 percent by year-end,” Dr. Addison stated.

The central bank’s revision comes after earlier optimism expressed after the September 2023 Monetary Policy Committee (MPC) meeting, where six months of consistent disinflation promoted a two percent rate cut.

However, a surprise uptick that saw inflation reach 21.5 percent in September 2024 – up from 20.4 percent in August – prompted suggestions that the apex bank might have been hasty in its decision.

However, Governor Addison backed the MPC’s decision-making process.

“Let me break down what the Monetary Policy Committee entails. We are pleased with our decision to lower the policy rate by 200 basis points. On the other side, we have seen significant improvements in economic indicators, inflation control and reserve management,” he explained.

The revised position is still more optimistic than some private sector analysts had projected.

DataBank, a leading financial services firm, in its half-year outlook suggested that inflation could reach as high as 23.5 percent by year-end – citing fuel price volatility and currency depreciation as key factors.

“We expect headline inflation to settle at approximately 21.5% ± 200 bps by end of FY ’24… We anticipate a sluggish decline in inflation, influenced by fluctuating fuel prices driven by external dynamics and a steady weakening of the domestic currency,” DataBank stated in the report.

The firm’s most optimistic scenario placed year-end inflation at 19.5 percent, still above the central bank’s revised target.

The BoG maintains that its policy stance remains consistent despite the upward revision. “It’s worth noting that the real policy rate remains relatively tight at 27 percent, considering the current inflation rate of 21.5 percent,” Dr. Addison explained.

Market observers had been concerned that the inflation outlook could be worse, economic outlook faces additional uncertainties due to an anticipated drop in the cedi’s value against its major trading partners….especially the U.S. dollar.

The sentiment was driven largely by developments with the Cocoa Board’s (Cocobod’s) seeming struggle to secure its annual syndicated loan. However, the BoG is confident in it reserve accumulation so far.

This, in addition to an anticipated rise in food and fuel prices due to the drought and conflict in the Middle East, heightened concerns about potential impacts on foreign exchange inflows and, consequently, on inflation and currency stability.

However, expected inflows from development partners – including US$360million from the IMF and an improved trade surplus – are anticipated to help stabilise the currency and temper inflationary pressures during the holiday season. These factors are crucial as the country approaches the typically high-demand yuletide period, which often puts pressure on the local currency.

The BoG maintains that it remains on course to achieve its medium-term target of 6-10 percent by end-2025, barring unanticipated shocks.

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