Bank of Ghana reduces policy rate

issahakuThe Monetary Policy Committee (MPC) of the Bank of Ghana (BOG) has reduced the Monetary Policy Rate (MPR) by 50 basis points from 26 to 25.5 per cent, the first since June 2011.

The MPC cited the positive economic outlook and subdued inflation as reasons for the drop.

Addressing a news conference in Accra yesterday to announce the decision of the MPC at after its 73rd regular meeting to review the development of the economy held last Friday, the Governor of the BoG, Dr Abdul-Nashiru Issahaku attributed the loosening of the MPR to positive economic development in the country, saying “the downside risks to growth outweigh the risks to inflation.”

The Governor who is the chairman of the MPC explained that headline inflation had gradually trended downwards in the year despite some upswings occasioned by pass-through effects of upward adjustments in petroleum, utility and transport prices.

“Policy tightness and continued stability of the exchange rate largely accounted for the declining trends,” he said, saying inflation which stood at 19.2 per cent in March had fallen sharply to 15.8 in October.

“Inflation outlook remains positive. Barring any major price shocks, the forecast remains broadly unchanged and inflation is expected to return to the medium-term target ban in 2017.  The current tight policy stance and exchange rate stability should further support the disinflation process,” the Governor said.

Dr. Issahaku said the growth of the country remained subdued for the most part of the year largely due to tight credit conditions and the downturn in commodity prices, but the Bank’s Updated Composite Index of Economic Activity recorded a modest year-on-year growth in the third quarter, compared with the same period last year.

“Growth conditions remain weak and below trend.  This is underpinned by weak global demand, declining commodity prices ad disruptions in the production of oil and gas. Other factors include weak private sector credit growth as a result of the tight credit stance and fiscal consolidation efforts,” he said

However, the Governor said the economic prospects of the economy were generally positive, and that was affirmed by the successful debut of the 10-year bond, which attracted about 75 per cent foreign investor participation.

Dr. Issahaku said the Ghanaian cedi remained stable against the major international trading currencies, saying “the outlook for the exchange rate remains positive and the Committee is optimistic that the cedi stability would be sustained.

The Ghana cedi cumulatively depreciated by 4.3 per cent against the US dollar between January and Octover 2016, compared with cumulative depreciation of 15.5 per cent in the same period last year, says the BoG.

Dr .Issahaku dismissed speculations of shortage of forex in the country, saying the “BoG has stack of dollars to be auctioned to the banks” due to inflows from the Cocoa Syndicated loans and the recent bonds issued by the governments.

He said Ghana’s external sector performance remained strong, saying “the provisional data shows significant improvement in the external trade deficit in the year to September, relative to 2015 on account of higher export receipts, mainly from.

“The outturn of the trade balance was significantly improved the provisional current account deficit to 3.1 per cent, relative to 5.0 per cent of Gross Domestic Product (GDP),” he said.

Dr. Issahaku said the country’s foreign reserve stood at $6.4 billion and accounted for four months import cover.

On the country’s fiscal deficit, the Governor said the fiscal operation in the year to September showed a budget deficit of 5.9 per cent of GDP, compared with a target of 3.9 of GDP.

“The higher programmed deficit was mainly due to lower revenues arising from a significant short fall in oil revenues,” he said.


By David Adadevoh & Kingsley Asare




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