BoG’s Strategic Action Shields Cedi, Signals Economic Optimism

In a reassuring address during the 117th sitting of the Monetary Policy Committee (MPC) in Accra, Dr Ernest Addison, the Governor of the Bank of Ghana (BoG), conveyed confidence in the central bank’s capacity to stabilize the local currency, the Cedi, despite its 6.8 percent depreciation in the first quarter of the year. With the gross international reserves escalating to $6.2 billion by the end of February, Dr. Addison affirmed the BoG’s robust financial buffers, poised to support the Cedi’s recovery.

The depreciation witnessed in the initial months of 2024 was attributed to seasonal pressures exacerbated by a stronger US dollar and substantial payments made by the BoG for the energy and corporate sectors. Dr Addison underscored the significant strides made towards stabilizing the currency, bolstered by the clearance of energy sector arrears and the infusion of a $600 million second tranche from the International Monetary Fund (IMF), of which $444 million was allocated towards settling energy sector debts.

The Governor acknowledged the challenges posed by delays and uncertainties around the cocoa loan inflow and the World Bank’s disbursement of budget support. Yet, he highlighted the mitigation measures in place, including continuous inflows from remittances, mining companies, and the Domestic Gold Purchase Programme, alongside the central bank’s weekly $20 million foreign exchange auction to Bulk Oil Distribution Companies (BDCs).

On the policy front, the MPC opted to maintain the benchmark interest rate at 29 percent, a decision influenced by the slight upside risks to inflation necessitating vigilant monitoring. This stance suggests that borrowing costs, currently between 32.5 percent and 33.5 percent, will remain relatively unchanged in the near term.

Dr Addison also provided insights into the provisional Balance of Payments outcome for 2023, revealing an overall surplus of $0.46 billion, a significant improvement from the $3.41 billion deficit recorded in 2022. This positive shift was largely driven by reduced income payments, lower capital account outflows, and an increase in remittance inflows. The gold purchase programme further supported these, escalated foreign exchange purchases, the IMF-supported programme’s first tranche, and the external debt servicing standstill.

The current account witnessed a surplus of $1.11 billion in contrast to the previous year’s deficit of $1.52 billion, reflecting the impact of lower outflows due to the debt standstill. Similarly, the capital and financial accounts experienced diminished outflows, with total capital and financial outflows plummeting to $0.76 billion from $2.14 billion in 2022. Notably, government debt amortization also saw a decline, dropping to $0.58 billion in 2023 from $1.09 billion, attributed to the debt standstill announced in December 2022.

This comprehensive fiscal and monetary update underscores the Bank of Ghana’s proactive measures and strategic policy interventions aimed at stabilizing the Cedi, ensuring economic stability, and fostering an environment conducive to sustained growth and development. The BoG’s assertive actions and the subsequent positive trajectory of Ghana’s balance of payments highlight the country’s resilience and the effective management of its economic challenges amidst global uncertainties.

Source: Graphic Online