The Bank of Ghana (BoG) has maintained the policy rate at 14.5 per cent.
In a statement on Monday February 1, the Governor of the central bank Dr Ernest Addison explained the reason behind the decision to maintain the rate.
He said the current account balance turned out better than earlier anticipated. However, lower-than-projected Foreign Direct Investment (FDI) flows and portfolio reversals resulted in a lower buildup of reserves than earlier projected.
The gross reserves at US$8.6 billion, translating into 4.1 months of import cover, will provide adequate cushion against potential external vulnerabilities in 2021, he added.
Dr Addison further said the prospects of a sharp fiscal correction in 2021 now looks unlikely amidst the second wave of the pandemic which will be requiring additional spending to provide testing, vaccines, etc.
To put debt on a sustainable path and to ensure sustainability in policies, some new revenue measures and expenditure rationalization efforts will have to be pursued within the context of the mediumterm fiscal framework to allow for the generation of primary surpluses.
Headline inflation, while on steady decline in the early months of the last quarter of 2020, jumped in December to 10.4 percent, outside the target band of 8±2 percent, driven by food prices.
However, the Bank projects headline inflation to return to target in the second quarter of 2021. Risks to inflation in the near-term are broadly contained, but short to medium-term risks emanating from the fiscal expansion and rising crude oil prices are emerging.
“Under the circumstances, and given the balance of risks to inflation and growth, the Committee decided to keep the policy rate at 14.5 percent,” the Governor said.
By Laud Nartey|3news.com|Ghana