Ghana: BoG warns Ghana’s reserves face pressure as inflation climbs to 5%

Ghana’s gross international reserves currently provide about 4.2 months of import cover, but the Bank of Ghana (BoG) has warned that the country’s external position could come under greater pressure during the third quarter.

Speaking at the opening of the Bank’s 132nd Monetary Policy Committee (MPC) meeting, Governor Dr Johnson Asiama identified several developments that could weaken Ghana’s external buffers and require closer monitoring.

Reserves face pressure from external risks

According to Asiama, the risks include a projected current account deficit, a potential decline in international reserves and the suspension of gold exports by the Ghana Gold Board since mid-August.

He said these developments were particularly important given the seasonal increase in foreign exchange demand typically recorded during the fourth quarter.

“Three particular issues will shape our discussions during this meeting, each carrying its own risk. Rebuilding reserves will be a key priority for the Bank in the coming months,” Asiama said.

The outlook for Ghana’s external reserves is expected to feature prominently in the MPC’s deliberations as policymakers assess the risks facing the economy and determine the appropriate monetary policy response.

The pressure on reserves also comes as the central bank continues to assess developments in the country’s external position and their implications for exchange rate stability and broader economic conditions.

Inflation rises to 5%

Inflation has emerged as another area of concern for policymakers, with headline inflation increasing from 3.2% in March to 5.0% in August.

The increase represents a 1.8 percentage-point rise over five months. While inflation remains below the lower boundary of the BoG’s medium-term target range, Asiama said the recent upward movement requires careful attention.

The Governor said the MPC would need to assess whether the increase would prove temporary, driven largely by higher energy costs and adjustments in administered tariffs, or develop into more persistent inflationary pressure.

A sustained increase could influence inflation expectations and complicate the central bank’s efforts to maintain price stability.

MPC weighs policy rate amid changing conditions

The MPC is therefore assessing the interaction between renewed inflationary pressures and the risks to Ghana’s external position.

The Committee will also consider whether the current policy rate of 14% remains appropriate amid changing domestic conditions and developments in the global economy.

The outcome of the meeting will be closely watched by businesses and financial markets for indications of how the BoG intends to balance inflation management, reserve accumulation and economic growth.

The deliberations come as policymakers face the dual challenge of protecting Ghana’s external buffers while monitoring whether recent increases in inflation represent a temporary adjustment or a more persistent shift in price pressures.