Monetary policy tightening and fiscal consolidation efforts to reduce inflationary pressures – BoG

The Bank of Ghana says its monetary policy tightening, together with the announced fiscal consolidation efforts by the Finance Ministry would upend the inflationary pressures in the outlook.
In its inflation outlook report the Central Bank said the risks in the outlook for inflation are on the upside and include petroleum price adjustments and transportation costs, exchange rate depreciation, fiscal constraints, rising global inflation, impact of Russia/Ukraine war on global supply chains, and lingering uncertainties about domestic food prices.
However, given these considerations, the Monetary Policy Committee raised the monetary policy rate from 14.5% to 17.0% to help re-anchor inflation expectations and steer inflation back within the medium-term target band.
The March 2022 forecast by the Central Bank showed a significant outward shift in the inflation outlook compared to the January 2022 forecast round.
Although the outturn from the inflation forecast was broadly consistent with expectations, changes from the January 2022 forecast were largely driven by the realization of significant pressures on the domestic currency amid fiscal uncertainties and tighter external financing conditions in the first quarter of 2022, together with upward adjustments in ex-pump petroleum prices, rising transportation costs and the steady recovery in domestic growth conditions over the forecast horizon.
The updated forecast assumptions, together with the impending second round effects of the surge in ex-pump prices and transportation costs, tight credit conditions, rising inflation expectations, lingering food price pressures, rise in production costs and the impact of the ongoing geopolitical tensions are expected to drive inflation above the medium-term target band of 8±2% in the near term.
However, inflation is expected to return to the target band over the forecast horizon as monetary conditions tighten, domestic currency stabilises, and supply chain disruptions ease in the medium-term, barring any unanticipated shocks.