Good morning, Ladies and Gentlemen of the Media and welcome to the press briefing after the 112th Monetary Policy Committee (MPC) meetings which took place last week.
The Committee deliberated on a variety of macroeconomic issues including the impact of the Domestic Debt Exchange on the economy, recent macroeconomic developments 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. The global economic outlook remains uncertain despite declining food and energy prices, re-opening of the Chinese economy, and improvements in business and consumer confidence. The latest Purchasing Managers’ Indices (PMI) point to some rebound in economic activity driven mainly by the services sector.
Notwithstanding these positive global developments, factors such as the recent financial sector turbulence in the United States, and lingering geopolitical tensions continue to keep uncertainty at heightened levels.
In broad terms, downside risks remain and continue to drag rebound in economic activity. These are further being compounded by difficult policy trade-offs and sovereign debt distress in some Emerging Market and Developing Economies.
Against this backdrop, the IMF has revised its growth projections downwards by 0.1 percent to 2.8 percent in 2023, compared with 3.4 percent in 2022.
2. Global headline inflation continues to ease in several economies, reflecting synchronized monetary policy tightening, declining energy and food prices, and an ease in supply chain bottlenecks. However, underlying inflationary pressures have remained strong due to the lingering effects of past shocks, tight labour markets and strong wage growth.
Consequently, central banks have continued to tighten policy rates, albeit at a slower pace, as headline inflation moderates. Weaker growth prospects and anticipation of less hawkish monetary policy stance have resulted in lower government bond yields in advanced economies.
Global equity prices, which fell following the recent failure of some banks in the United States, have since recovered. In the outlook, the expectation is for further ease in financing conditions stemming from moderating inflation, slower pace of policy rate hikes by central banks, and relative stability in the banking sector in key jurisdictions
3. On the domestic front, price developments since the last MPC meeting in March 2023, point to continued easing of inflationary pressures, with two additional consecutive declines in headline inflation. There has been a further deceleration in headline inflation to 45.0 percent in March and then to 41.2 percent in April 2023.
The ease in inflation has been largely supported by monetary policy tightening, relatively stable exchange rate, and declining international crude oil prices which have allowed ex-pump petroleum prices to be adjusted downwards. From the beginning of the year to April 2023, headline inflation has recorded a decline of 12.9 percent, non-food inflation has declined by 14.5 percent, while food inflation also fell by 11.1 percent.
4. Underlying inflationary pressures are also easing, as the Bank’s core measure of inflation declined for the fourth consecutive month. Core inflation, which excludes energy and utility prices, declined to 41.7 percent in April 2023, from 44.6 percent in March, and 52.0 percent in February. Similarly, except for the banking sector’s inflation expectations which was broadly unchanged, both consumer and business inflation expectations dipped in April 2023.
5. On growth conditions, the latest release by the Ghana Statistical Service shows that real GDP growth moderated to 3.1 percent in 2022, compared with 5.1 percent growth recorded in 2021. Non-oil GDP growth was 3.8 percent, down from 6.6 percent over the same comparative period. The decline in growth was driven by a slowdown in the agriculture and services sectors, whereas industry recovered driven by increased gold production relative to the contraction recorded in 2021.
6. The updated real Composite Index of Economic Activity (CIEA) contracted by 6.4 percent in March 2023, compared to a contraction of 7.2 percent in the previous month, and a growth rate of 4.6 percent in March 2022. The main indicators that weighed down the Index during the period were imports, cement sales, credit to the private sector and port activity. Domestic VAT collections, industrial consumption of electricity and tourist arrivals, however, improved in the review period.
7. The Bank’s latest confidence surveys conducted in April 2023 showed further improvement in sentiments. Consumer confidence improved on the back of easing inflationary pressures, which led to consumer optimism about prospects of future economic conditions.
Similarly, businesses met short-term company targets during the period and expressed positive sentiments about company and industry prospects on the back of improving consumer demand and relative stability in the local currency. The survey findings were broadly aligned with observed trends in Ghana’s PMI for April 2023, which signalled improvements in business conditions for the third successive month.
8. In the first four months of the year, broad money supply recorded strong growth, driven an expansion in Net Domestic Assets of the depository corporation sector, largely on account of net claims on government. Net Foreign Assets, on the other hand, contracted.
Annual growth in broad money supply was 45.6 percent in April 2023, compared with 19.9 percent growth in April 2022. The growth in M2+ reflected in all the components. Reserve money also grew by 46.5 percent year-on-year in April 2023, compared with 33.8 percent annual growth, a year earlier.
9. Private sector credit generally slowed in line with the tight monetary policy stance, banks’ portfolio rebalancing after the domestic debt exchange and moderation in economic activity. Nominal growth in private sector credit eased to 19.8 percent in April 2023, relative to 26.5 percent growth recorded in April 2022. In real terms, private sector credit contracted by 15.2 percent compared with the 2.4 percent growth recorded over the same comparative period.
10. On the money market, interest rates broadly trended upward in April 2023 at the short end of the yield curve, consistent with the tightening policy stance.
The 91-day and 182-day Treasury bill rates increased to 19.67 percent and 22.29 percent respectively, in April 2023, from 16.22 percent and 16.72 percent respectively, in April 2022. Similarly, the rate on the 364-day instrument increased to 27.04 percent in April 2023 from 18.93 percent in April 2022.
11. The interbank weighted average rate increased to 25.89 percent in April 2023 from 16.46 percent in April 2022, underpinned by policy rate hikes during the review period. In tandem, average lending rates of banks rose to 31.66 percent in April 2023, compared with 21.61 percent in the same period of 2022.
12. The 2022 audited financial statements of banks reflected the full impact of the Domestic Debt Exchange Programme (DDEP) and the challenging operating environment that prevailed in the year. Most banks reported significant losses on the back of the mark-to-market valuation losses on their respective holdings in Government of Ghana bonds following the implementation of the DDEP. Other losses were due to higher impairments on loans and rising operating costs.