The ongoing conflict in the Middle East presents a mixed bag of potential gains and renewed economic risks for Ghana, according to Bank of Ghana Governor Johnson Asiama. Speaking at the opening of the central bank's 132nd Monetary Policy Committee meeting, Asiama warned that higher energy and fertiliser costs could fuel inflation in the country. He noted that the conflict has created competing pressures for the Ghanaian economy.
On the one hand, higher gold prices could boost Ghana's export earnings, support the accumulation of foreign exchange reserves, and increase government revenue. However, rising energy and agricultural input costs could also feed into transportation, production, and food prices, putting renewed pressure on inflation. Asiama emphasised that the conflict's trajectory has become highly uncertain, and risks to global growth and inflation have become more pronounced.
The Bank of Ghana reported that global growth forecasts have been revised down, with the World Bank and United Nations projecting growth of 2.5 percent, below pre-pandemic levels and the International Monetary Fund's April estimate of 3.1 percent. The central bank also pointed to weaker per-capita income growth in emerging and developing economies, while growth forecasts for the Middle East and North Africa region have undergone cumulative downward revisions of almost three percentage points.
Global inflationary pressures are rising as energy and agricultural input prices increase. Brent crude, which was trading above $85 a barrel when the Monetary Policy Committee last met, reached about $107 a barrel last week, according to the Bank of Ghana. The bank said the increase came amid depleted global inventories, leaving international markets with less capacity to absorb further supply disruptions.
The developments could also complicate Ghana's monetary policy outlook. Several central banks that had begun cutting interest rates have paused or reversed their easing cycles, while financial markets are pricing in the possibility of higher US interest rates. Tighter global financial conditions and a stronger dollar could put pressure on emerging-market currencies, including Ghana's cedi, the central bank said.
Asiama said the MPC would assess whether the changing balance of risks warranted a shift in monetary policy or whether there was still a case for maintaining the policy rate at its current level. The MPC is expected to consider the competing effects of the global shocks on Ghana's inflation and economic growth as it determines its next policy position.
The Bank of Ghana's Governor emphasised that the central bank would closely monitor the situation and take necessary actions to ensure economic stability. The country's economy is expected to face challenges in the coming months, and the central bank's decisions will be crucial in mitigating the impact of the global shocks.
Key points
- The conflict in the Middle East poses a risk of higher inflation in Ghana due to increased energy and fertiliser costs.
- Global growth forecasts have been revised down, with the World Bank and United Nations projecting growth of 2.5 percent.
- The Bank of Ghana's Monetary Policy Committee will assess the changing balance of risks and determine its next policy position.
