Monetary Policy Framework
The Bank’s monetary policy objective is to ensure price stability – low inflation – and subject to that, to support the Government’s economic objectives including those for growth and employment. Price stability is defined by the government’s inflation target. This target is revised annually and spelt out clearly in the budget statement for each fiscal year. The objective recognizes the role of price stability in achieving economic stability more generally, and in providing the right conditions for sustainable growth in output and employment. The Bank of Ghana Act 612 (2002) made the Bank independent to set interest rates. The Bank is accountable to Parliament and the wider public.
Medium-Term Inflation Target
The medium-term inflation target (currently 8±2 percent) is set jointly by the fiscal and monetary authorities, and is expressed in terms of an annual rate of CPI inflation. Although the Bank is not bound by law to explain developments to the Ministry of Finance or to Parliament if the target is not achieved, the Governor of the Bank of Ghana may be summoned to the Finance Committee of Parliament to explain developments within the economy. A target of 8±2 percent, for example, does not mean that inflation will be held within this band constantly. The economy is subject to shocks that can cause unnecessary uncertainty and volatility. When inflation stays above target for some obvious reasons, the MPC’s aim would be to steer interest rates so that inflation can be brought back to target within a reasonable period of time without creating undue instability in the economy.
Monetary Policy Committee (MPC)
The Bank seeks to achieve the government’s inflation target by setting a monetary policy interest rate which is decided by the MPC. The MPC consists of seven members – five from the Bank of Ghana and two external members appointed by the Minister of Finance. The meetings are chaired by the Governor of the Bank of Ghana. The MPC meets bi-monthly for a two-day meeting, usually beginning on Monday and ending on Tuesday, followed by a Press conference on Wednesday. The meeting dates for each year are determined well in advance at the beginning of each year. Decisions are made by a vote of the Committee on a one-person one-vote basis, with each member stating clearly and with reasons why a particular rate decision was preferred or otherwise. The final decision is reached by consensus.
Although the Minutes of the MPC meetings are not published, a wide range of economic reports are made available at the Bank of Ghana website within two weeks after the announcement of the interest rate decision. These economic reports provide a detailed analysis of economic conditions at the time of the meeting. The report covers the following areas: World Economic Outlook and External Sector Report, Monetary and Financial Developments, Financial Stability Report, Real Sector Developments, and an Inflation Outlook and Analysis Report. The transcript of the Press briefing is also published on the Bank’s website, within a week after the MPC meeting.