Ghana’s central bank has flagged the escalating Middle East conflict as the most significant external risk to its improving economic outlook, warning that prolonged geopolitical tensions could gradually undermine inflation stability, currency conditions, and global growth momentum.
The Bank of Ghana says the conflict has already disrupted global shipping routes, pushed up energy prices, and increased uncertainty in international markets. Those developments, it noted, have contributed to a downward revision of global growth forecasts by the International Monetary Fund to 3.1% for 2026, with further risks tilted to the downside if the situation persists.
At the 130th Monetary Policy Committee meeting, the central bank kept its policy rate unchanged at 14%, citing a broadly balanced outlook between inflation and growth. However, it stressed that external shocks, particularly from the Middle East remain the dominant uncertainty shaping future policy direction.
“The committee… acknowledged that ongoing geopolitical tensions in the Middle East have broadly weakened the global growth outlook… stoked inflationary concerns and heightened policy uncertainty,” the Governor said during the briefing.
Officials said the disruption of trade flows, especially through key maritime corridors, has driven up crude oil prices, with spillover effects on food and transport costs globally. This, in turn, has begun to feed into rising inflation expectations in both advanced and emerging economies, potentially prompting tighter monetary policy worldwide.
For Ghana, the transmission channel is largely through fuel prices, import costs, and exchange rate pressures. Higher global oil prices increase the foreign exchange cost of imports, while also feeding into domestic transport and utility tariffs through periodic adjustments.
The Governor warned that if the conflict becomes prolonged, inflation expectations could shift more persistently, with second-round effects filtering into the domestic economy. He added that crude oil could remain elevated in such a scenario, amplifying imported inflation risks.
“The elephant in the room is the Middle East crisis,” he said, adding that uncertainty over its duration makes it difficult to fully quantify the long-term impact.
Despite these risks, the central bank noted that the domestic economy continues to show resilience, supported by strong private sector credit growth, improved trade activity, and easing financial conditions. Inflation remains within the medium-term target band, although it recorded a slight uptick in April, breaking a prolonged disinflation trend.
On the financial side, lending rates have eased significantly over the past year, and short-term market yields have declined sharply. However, businesses continue to argue that the easing cycle has not fully translated into cheaper credit, especially for smaller firms.
Officials attributed the lag in monetary transmission to structural factors within the banking system, including cautious credit appraisal practices and the time required for banks to adjust their portfolios to a lower interest rate environment.
Global financial conditions also remain a concern. Rising inflation in advanced economies, partly driven by energy costs linked to the conflict, could prompt central banks to tighten policy further, potentially reversing capital flows to emerging markets like Ghana.
In response to external pressures, Ghana’s reserve position has strengthened, with gross international reserves rising to about 14.4 billion dollars, equivalent to 5.7 months of import cover. The central bank said these buffers are critical in managing short-term volatility in the foreign exchange market.
Officials stressed that the exchange rate will continue to operate under a managed float regime, with intervention limited to smoothing excessive volatility rather than targeting a fixed level. Recent pressure on the cedi, they said, has been driven by seasonal demand for foreign currency, dividend payments, and higher import requirements.
While acknowledging these pressures, the central bank maintained that it is not intervening heavily in the market but rather building reserves to strengthen long-term stability.
Looking ahead, policymakers indicated that the trajectory of global oil prices and the duration of the Middle East conflict will be central to future monetary policy decisions.
For now, they say, domestic fundamentals remain supportive, but the external environment remains the key source of uncertainty.
The elephant is not fully inside the economy yet, but it casts a long shadow over it, clouding policymakers’ view of the future.
