The BoG’s decision to maintain the rate for a fifth time running is in conformity with steps taken by authorities to stabilise the macro-economy of the country and bring down inflation, which rose two percentage points to 16.9 per cent in August.
Speaking at a news conference, at the end of the BoG’s Monetary Policy Committee (MPC) review meeting, Dr. Issahaku said: “The committee noted the moderation in headline inflation since the July meeting on the back of continued cedi stability, easing inflation pressures and tight credit conditions, which implicitly reflect continued monetary policy tightness.”
He explained that price developments since the last MPC showed that headline inflation which stood at 18.4 per cent in June, declined to 16.7 per cent in July, before edging up to 16.9 per cent in August 2016.
“The slowdown in July was largely attributed to base effects from non-food inflation which fell by 2.9 percentage points to 21.2 per cent while food inflation remained virtually unchanged. In August, inflation inched up, again due to base effects arising from a downward revision in petroleum products a year earlier,” the Governor said.
However, he said the bank’s measure of core inflation (CPI inflation excluding energy and utility prices), which reflected underlying inflation, continued to trend downwards, adding that inflation expectations by businesses, consumers and the financial sector also eased on the back of continued stability in the local currency.
Going forward, Dr. Issahaku said the continued monetary and fiscal policy tightness, together with stability in the foreign exchange market should support the disinflation process.
“The upside risks to the inflation outlook are the unanticipated shocks, especially with regards to the intermittent upward adjustments in petroleum and utility prices, and their second round effects,” he said.
Dr. Issahaku noted that the local currency had been relatively stable since the beginning of the year, saying that in the year to September 15, 2016, the Ghana cedi cumulatively depreciated by 4.1 per cent compared with 16.0 per cent depreciation in the same period of 2015.
“This was achieved on the back of tight policy stance and improved foreign exchange flows. The stability of the currency is expected to be sustained, supported by the continued policy tightness, proceeds from the recently issued Eurobond, inflows from donors and the pre-export finance facility for cocoa,” he said.
Dr. Issahaku said the updated Composite Index of Economic Activity (CIEA) for July 2016 reflected an increased pace of growth relative to same period in 2015, explaining that the key indicators which contributed to the pickup in economic activity were port activities and industrial consumption of electricity.
In the latest surveys, he said business and consumer sentiments on the economy were mixed, adding that while consumers expressed optimism, business perceptions about the general economic situation were modest due to their unrealised expectations.
“Growth conditions are expected to improve over the medium-term supported by the sustained improvement in the power sector and increased oil and gas production. However, the headwinds to growth include tighter fiscal consolidation, declining private sector credit and delayed recovery in commodity prices,” he said.
Dr. Issahaku said the committee would continue to monitor developments in the economy and take appropriate actions, if necessary, towards attaining the medium-term inflation target over the forecast horizon.
The MPC is responsible for formulating and implementing policy in the areas of money, banking and credit with the main aim of maintaining stable prices conducive to balanced and stable economic growth as well as promoting and preserving monetary stability. The committee sets an interest rate it judges to be consistent with an inflation target and an objective of growth.
The next MPC meeting is scheduled for Friday, November 18, 2016. The meeting will conclude on Monday, November 21, 2016, with an announcement of the policy decision.
By Times Reporter