The Monetary Policy Committee (MPC) of Ghana’s central bank decided on February 18 to maintain the main policy rate at 21%, citing balanced risks to the inflation and growth outlook. The Bank of Ghana (BOG) raised its policy rate by a cumulative 500bp last year, trying to stave off a hefty depreciation of the local cedi currency and surging inflation.

Now, the bank observed that after peaking at end-2014, inflation has begun to decline in January on the back of tight monetary policy stance, base effects and improved inflation expectations. The annual consumer price inflation slowed to 16.4% in January from 17% in December, easing for the first time in 12 months. According to the BOG, the disinflation is likely to continue through 2015, heading towards the target band of 2pp either side of 8% later in 2016.

“The upside risks to the inflation forecasts include the effects of the prolonged energy crisis through increased input costs, higher inflation expectations as well as emerging pressures in the foreign exchange market,” the central bank said in a statement. “On the downside however, the passthrough effects of the falling crude oil price, declining inflation expectations, the ongoing fiscal consolidation, and a possible program with the IMF are expected to exert some downward pressure on inflation and drive inflation further down towards the target bands.”

Regarding the economic outlook, the BOG noted that GDP growth decelerated to an estimated 4.2% last year from 7.3% in 2013 largely due to energy supply constraints and rising input costs. It saw improving economic activity, supported by a pick-up in consumer and business sentiments, strong growth in real credit to the private sector, addition of the Atuabo Gas processing plant, and the potential IMF deal, which should underpin investor confidence. On the other hand, downside risks to the growth outlook include the persistent power supply constraints, the planned fiscal consolidation, the tight monetary policy, and the weak international commodity prices, particularly crude oil prices, the bank said. The West African country is a major exporter of oil, gold and cocoa.

Ghana’s government is currently engaged in a final round of talks with the IMF on a financial assistance programme that should restore macroeconomic stability and help win back investor confidence.