BoG Calls For Tougher Action To Stabilise Economy

Kofi Wampah PixThe Bank of Ghana (BoG) raised its prime interest rate by 100 basis points to 19.0 per cent to contain inflationary pressure, and called for tougher action to stabilise the economy.

Rapid growth over the years has improved Ghana’s economic status, but the country is facing fiscal instability, including a high budget deficit, inflation and a currency that has depreciated 30 per cent this year.

On Wednesday, the Ghana Statistical Service (GSS) said that annual consumer price inflation has risen to a four-year high of 15.0 per cent in June from 14.8 per cent in May.

On the same day, at another news conference in Accra, BoG Governor, Henry Kofi Wampah said the bank’s Monetary Policy Committee viewed the risks to inflation as elevated, blaming persisting fiscal and exchange rate pressures for the additional impetus for the worsening inflation outlook.

According to Dr. Wampah, the figure pushed inflation further beyond the 2014 target of 9.5 per cent, and it is not likely to return to its target range anytime soon and, therefore, prompted the government to take a firm policy stance to weather the storm.

The Governor said fiscal consolidation will require a more aggressive stance in the second half of 2014 while government must continue to enhance revenue measures and rationalise expenditure to achieve the fiscal deficit target of 8.5 pct of the GDP.

Other economists have also said the responsibility of restoring stability in the economy is for the government to take pragmatic policies.

For instance, Melissa Ver-reynne of NKC Independent Economists in South Africa, told Reuters that the rise in interest rates was a positive move as far as it went that would help restore credibility, rein in inflation and stem the slide in the cedi currency.

“It may be counter-productive to address the economy’s woes by monetary measures, as the root cause is the fiscal position … I am doubtful how much of an impact the policy rate increase will have in the absence of substantial fiscal adjustments, which do not seem to be forthcoming,” she was quoted as saying.

The government has already taken tough measures, including cuts to fuel and utility subsidies in 2013, and has hinted of an introduction of a series of fresh policies to achieve its objective of reducing the deficit under a multi-year programme.

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