BoG cautions against speculative purchases affirms exchange rate stability
The Bank of Ghana has issued a strong warning to economic agents against engaging in speculative purchases of foreign exchange, asserting that such actions will lead to economic losses.
“The Bank of Ghana remains fully committed to providing stability in the exchange rate for the cedi. The Bank has enough foreign exchange reserves to support the market, and economic agents should stop engaging in speculative purchases as they will suffer economic losses when the correction occurs,” the Bank stated.
The Bank of Ghana indicated that high-frequency indicators signal a sustained pick-up in economic activity through the first quarter of 2024. The Composite Index of Economic Activity (CIEA) grew by 2.1% in March 2024, compared to a contraction of 6.4% in the same period in 2023. This improvement was driven by increased imports, private sector contributions to SSNIT, and rising tourist arrivals. Additionally, the Bank of Ghana reported that Ghana’s Purchasing Managers’ Index (PMI) rose to 51.3 in April 2024 from 50.9 in March, reflecting improved consumer demand.
However, the Bank of Ghana’s confidence surveys from April 2024 indicate a softening of business and consumer sentiments. Consumers are concerned about future economic conditions, while businesses are worried about exchange rate volatility and intermittent power supply, which could increase operational costs.
The Bank of Ghana observed that the disinflation process has been sluggish. Inflation, which dropped to 23.1% in December 2023, rose to 25.8% by the end of the first quarter of 2024, driven largely by rising food prices. By April 2024, the Bank of Ghana noted that inflation eased slightly to 25% due to improved supply of seasonal food crops, countered by rising non-food inflation from exchange rate pass-through effects.
The Bank of Ghana stated that fiscal performance has generally aligned with targets under the IMF-supported program. Provisional data show a primary balance deficit of 0.6%, compared to a target deficit of 0.2%. Total revenue and grants amounted to GH¢30.4 billion, below the programmed target of GH¢37.7 billion, while total expenditures reached GH¢49.0 billion, also below the target of GH¢55.5 billion.
Monetary aggregates growth slowed significantly, reflecting the Bank’s liquidity management operations, according to the Bank of Ghana. Total liquidity (M2+) grew by 29.9% year-on-year in April 2024, compared to 45.6% in April 2023. Despite the slowdown, commercial banks’ reserves surged following the implementation of the dynamic Cash Reserve Requirement (CRR).
The Bank of Ghana reported that private sector credit growth remained weak, slowing to 10.8% in April 2024 from 19.8% in April 2023. Short-term interest rates on the money market showed upward trends, with the 91-day and 182-day Treasury bill rates rising to 25.68% and 28.03% respectively in April 2024.
The Bank of Ghana remains committed to providing stability in the exchange rate for the cedi. With adequate foreign exchange reserves and a strong reserve build-up, the Bank aims to manage shocks to the foreign exchange market effectively. Additionally, measures to improve market conduct and instill sanity in the foreign exchange market are being implemented by the Bank of Ghana.
Given these considerations, the Monetary Policy Committee of the Bank of Ghana decided to maintain the Monetary Policy Rate at 29.0%, reflecting a cautious approach amidst ongoing inflationary pressures and exchange rate challenges.
