BoG maintains policy rate at 16 per cent

The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has maintained the Monetary Policy Rate (MPR) at 16 per cent in spite of the strong growth, decline in inflation and relative stability of the local currency, the cedi.

Dr Ernest Addison, the Governor of the BoG who announced the policy rate at a news conference in Accra after the 90th regular meeting of the MPC, said the committee decided to maintain the MPR over concerns of rising fiscal deficit and weak government revenue generation.

“The fiscal situation remains a concern and strengthened efforts would be needed to close the deficit gap.  The committee was concerned about the continued revenue weakness which requires expenditure adjustments, to contain a larger than projected budget deficit.  This will help underpin investor confidence in the Ghanaian economy and reduce the burden on monetary policy,” the Governor said.

He said the committee would continue to study what accounted for the decline in inflation before it took a decision on the MPR going forward.

Dr Addison, who is the Chairman of the MPC, said the provisional data from January to July 2019 revealed that total revenue and grants amounted to GH¢26.8 billion (7.7 per cent of Gross Domestic Product (GDP), compared with the envisaged target of GH¢31.8 billion (9.2 per cent of GDP).

However, he said, total expenditures and arrears clearance grew, in year on year terms, by 22.4 per cent to GH¢40.4 billion (11.7 per cent of GDP), marginally below the target of GH¢42.9 billion (12.4 per cent of GDP).

“This developments resulted in an overall budget deficit (on a cash basis) of 3.9 per cent of GDP against the target of 3.2 per cent of GDP.  The primary balance also recorded a deficit of 0.7 per cent of GDP as against a programmed surplus of 0.1 per cent of GDP,” he said.

The Governor said global growth since July has remained subdued due to the U.S-China trade tensions and unresolved Brexit negotiations and also growth in emerging markets had weakened, partly influenced by the slowdown in global trade and concerns of U.S-China trade tensions.

Dr Addison indicated that global financing conditions remained favourable due to the general accommodative monetary policy stance across most advanced and emerging market economies., saying the, “The weakened growth momentum underpinning the dovish shift in central bank forward guidance in most advanced economies may keep interest rates low to support growth over the medium-term.”

On the domestic front, the Governor said growth had remained strong and the momentum had been sustained since last year.

“The latest growth estimates released by the Ghana Statistical Service indicated a 5.7 per cent GDP growth in the second quarter of 2019, driven mainly by strong growth in communication, mining and real estate sectors.  The second quarter growth is higher than the 4.5 per cent recorded during the same period of last year,” Dr Addison said.

He said the positive medium-term outlook was expected to be driven by improvements in business sentiments, and expectations of increased production in the oil and gas and mining sectors, and the continued implementation of growth-oriented government flagship projects.

By Kingsley Asare

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