The Governor of the bank, Dr. Kofi Wampah who announced this at a media briefing in Accra yesterday explained that the increase was to reduce the risk of inflation towards the fiscal consolidation for a sustained economic growth.
He indicated that current economic data and forecasts suggested further lengthening of inflation target horizon from the second half of 2016 into 2017.
This development Dr. Wampah noted was largely driven by some factors including exchange rate pass-through, possible upward adjustment in energy and utility prices as well as cost push factors associated with the persistent energy sector challenges.
“Inflation expectations have heightened across consumers, businesses and the financial sector, which could have implications for pricing behaviour, especially in energy and utilities that could weigh down on economic activity,” he said.
He said the monetary policy committee observed during their last meeting that the fiscal performance in the first quarter had been encouraging with the deficit as well as central bank financing which was well within targets.
Dr. Wampah who is also the chairman of the monetary committee said though the emerging consolidation constitutes a downside risk to growth, the subdued demand pressures would help to dampen inflation pressures adding that, “sustaining the first quarter performance over the medium term is critical, and together with the tight monetary policy stance would facilitate the achievement of macro-economic stability.”
Explaining further the cause of the increase, he said sub-Sahara Africa was set to register another year of strong growth, and countries exposed to this global trend would however, remain cautious to avert the risk of capital flow reversals that may arise from the anticipated changes in the US monetary policy stance.
The Governor stated that gold prices could come under some pressure with prices projected to remain within the range of 1,180 dollars and 1,250 dollars per ounce, while brent crude oil prices expected between 59 dollars and 62 dollars in the second quarter to 67 dollars per barrel in the fourth quarter.
He said cocoa prices were expected to peak this year as supply weaknesses push up prices projected to average 3,052 dollars per tonne in the second quarter.
Dr. Wampah said revenue and grants were above targets, while expenditure was below target as major items including wage bill were contained within target that resulted in a cash fiscal deficit equivalent to 0.6 per cent of Gross Domestic Product (GDP) against a target of 1.9 per cent.
“Total public sector debt stood at GH¢88.2 billion at the end of March this year representing 65.3 per cent while domestic debt constitutes 41.4 per cent with external debt at 58.6 per cent.
He said total assets in the banking sector moved from GH¢40 billion in March last year to GH¢55.1 billion in March this year adding that it was mainly forded by deposits which recorded an annual growth of 30.8 per cent to GH¢34 billion at the end of March 2015.
Dr. Wampah indicated that both the 91-day and 182-day treasury bill rates fell from 25.8 per cent and 26.4 per cent to 25.1 per cent and 25.8 per cent respectively saying the one-year note rate remained unchanged at 22.5 per cent while the five-year bond rate rose to 21 per cent from 19.0 per cent.
By Lawrence Vomafa-Akpalu