BoG Signals possible policy shift as inflation risks rise amid Global Energy Shock

The Bank of Ghana has indicated that it may reassess the country’s interest rate and broader monetary policy stance as renewed inflationary pressures linked to the prolonged Middle East conflict threaten to complicate recent macroeconomic gains.

Opening the 130th Monetary Policy Committee (MPC) meeting, Governor Dr Johnson Pandit Asiama said Ghana’s economy has continued to improve since the committee’s last sitting in March 2026, supported by ongoing reforms, easing inflation, and improved investor sentiment.

However, he cautioned that deteriorating global conditions—particularly rising energy and commodity prices driven by geopolitical tensions—are introducing new risks to inflation and economic growth.

“The economy has improved, and it has done so meaningfully since our last meeting in March this year,” Dr Asiama said. “At the same time, a deteriorating external environment, characterised by the ongoing conflict in the Middle East and its effects on global energy and commodity prices, is introducing new headwinds that must be weighed carefully.”

He noted that the committee would review whether the current monetary policy stance remains appropriate, especially as inflationary pressures begin to resurface globally. According to him, several central banks that had started easing monetary policy have now paused or reversed course due to renewed price pressures linked to energy costs.

For Ghana, an oil-importing economy, he explained that the external shock could feed into higher transport fares, food prices, and import costs, thereby affecting inflation expectations.

Dr Asiama added that headline inflation had risen for the first time since December 2025, while domestic energy supply disruptions and external price pressures continue to pose risks to price stability. “The issues range from realigning the entire interest rate structure in the economy as inflation remains low, to addressing policies to ensure inflation expectations do not become dislodged,” he said.

Despite these risks, the Governor highlighted improving macroeconomic indicators, including a stronger external position and renewed activity in the domestic debt market. He noted that Ghana’s current account surplus in the first quarter of 2026 exceeded the same period last year by US$652 million, while the successful issuance of a seven-year domestic bond earlier in the year reflected renewed investor confidence.

He also referenced government plans to raise about US$1 billion equivalent through local currency bonds to finance cocoa purchases for the 2026/27 season, aimed at reducing reliance on foreign currency borrowing and offshore financing.

Dr Asiama further noted that Ghana is nearing completion of its US$3 billion IMF Extended Credit Facility programme in August 2026 and is preparing to transition into a new 36-month non-financing Policy Coordination Instrument (PCI) arrangement with the Fund.

He explained that the PCI would preserve the credibility and signalling benefits of IMF engagement while supporting continued reforms without direct financial assistance. The framework will focus on fiscal consolidation, debt sustainability, financial sector stability, monetary policy reforms, and economic diversification.

According to him, the arrangement will also support improvements in the Bank of Ghana’s monetary operations, including liquidity forecasting, the inflation-targeting framework, and policy transmission mechanisms.

Dr Asiama described the PCI as a “considered and credible next step” in Ghana’s engagement with the international financial system.

Despite the positive outlook, he warned that risks remain elevated, citing the Middle East conflict, rising energy prices, domestic power supply challenges, and external revenue pressures as factors that could threaten inflation stability and macroeconomic gains if not properly managed.

The MPC is expected to conclude its deliberations and announce its policy decision on Wednesday, May 20, with market participants closely watching for signals on interest rates and liquidity management direction.