Bank of Ghana maintains policy rate at 17 per cent

The Bank of Ghana (BoG) for the second consecutive time has maintained the Monetary Policy Rate (MPR) at 17.0 per cent.

The BoG maintained the MPR at its 83rd meeting in July 23 citing subdued inflation pressure.

The local currency as of September 20, cumulatively depreciated by 7.3 per cent, and inflation increased from 9.6 in July to 9.9 in August this year.

The Central Bank mentioned stability in global growth, the growth of the economy over the medium term, as some of the reasons for maintaining the MPR.

Speaking at a press conference in Accra yesterday, the Governor of the BoG, Dr Ernest Addison said the BoG decided to maintain the MPR   in spite of the depreciation of the cedi and the marginal increase in inflation.

He said the marginal elevation of the disinflation path taking into account the possible second round effects of the recent increases in petroleum prices, exchange rate depreciation, effects of recent increases in taxes, pick-up in global inflation as well as the effects of the tight global financing conditions, should have warranted some adjustment in the policy rate.

“Given these considerations and weighing the balance of risks the committee decided to keep the policy rate unchanged, but will continue to monitor closely developments in the coming months and take the appropriate policy actions to address any potential threats to the inflation outlook,” he said.

He said the MPC “observed that the expectation was for steady growth over the medium term,” saying, “The bank’s leading indicator of economic activity confirms fairly robust growth.”

“Economic activity has continued to strengthen.  The bank’s real Composite Index of Economic Activity recorded an annual growth of 6.6 per cent in July 2018, the highest in eight months, compared to 2.1 per cent in the corresponding period of 2017,” he said, stressing that the achievement, among other things, could be put down to the strong export growth, industrial consumption of electricity and tourists arrivals.

Dr Addison said the “recently signed cocoa syndication loan of $1.3 billion would bring in additional foreign exchange to further boost the country’s international reserves and provide some cushion against any further pressure”.

However, he said the BoG August Consumer Survey indicated consumer confidence was easing and businesses were concerned about the impact of the recent volatility in the exchange rate on their operations.

Dr Addison said fiscal operations from January to June indicated that the overall budget deficit of 2.8 per cent of Gross Domestic Product was on target, with total revenue and grants amounting to about GHȻ22.0 billion, equivalent  to 9.1 per cent of GDP and below the programmed target of 9.5 per cent.

The Governor said total expenditures, including arrears clearance, was  GHȻ27.9 billion representing 11.5 per cent of GDP, which was also below the target of 12.1 per cent and the deficit was financed from both domestic and external sources amounting to GHȻ3.4 billion and GHȻ3.7 billion respectively.

“Total public debt decreased from 67.4 per cent of GDP (GHȻ137.5 billion) in July 2017 to 65.9 of GDP (GHȻ159.4) billion at the end of July 2018.  Of the total debt stock, domestic debt stock was GHȻ73.8 billion accounting for 46.3 per cent and external debt was GHȻ85.5 billion with a share of 54.7 per cent,” Dr Addison said.

Touching on the depreciation of the cedi, he said the cedi had performed well relative to the South African Rand, Kenyan Shilling, Zambian Kwacha, Argentinean Peso, and Brazilean Real.

“The Cedi remains competitive as indicated by developments in the real effective exchange rate, the real effective exchange rate, in traded-weighted terms remained within the desired band, indicating that they are broadly aligned with the underlying fundamentals,” he said.

On the current sovereign credit rate upgrade by Standard and Poor, Dr Addison said it “should lead to a reduction in Ghana’s sovereign risk premium, reduce the cost of borrowing and minimise rollover risks”.

The Governor said the rising global inflation and the increase in the price of crude of oil on the world market could have serious implications on the Ghanaian economy.

By Kingsley Asare

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