BoG maintains key lending rates
The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has maintained its key lending rate at 26 per cent for a fourth straight meeting citing risks to inflation and balanced growth.
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The Governor of the Bank of Ghana, who doubles as the Chairman of the MPC, Dr Abdul Nasiru Isahaku, said at a news conference in Accra that inflationary trends in the first half of the year had been largely influenced by increases in the prices of petroleum products and utility tariffs.
“The committee views the risks to inflation and growth as balanced,” the governor said on Monday.
The MPC, he said, “sees the current monetary policy stance as appropriate since inflation levels remain above the medium-term target band.”
“Inflation stood at 18.4 per cent in June but was expected to peak in the third quarter of 2016 before beginning to fall,” Dr Issahaku said.
The policy rate, which is the rate at which the central bank lends to banks and is also used by the banks to calculate their base rates, is expected to keep the country’s interest rates further tightened.
The central bank raised the rate four times by a total of 500 basis points last year to prop up a plunging currency which fuelled consumer-price growth.
“To a large extent, the pace of decline in inflation has been reinforced by the current tight monetary policy stance and stability in the local currency,” Dr Issahaku.
IMF aid programme
The country is following a three-year aid programme with the International Monetary Fund (IMF) to stabilise an economy dogged by high fiscal deficits, public debt and consumer inflation that is persistently above government targets.
The government is forecasting to narrow the budget deficit to five per cent of gross domestic product this year from 6.5 per cent in 2015 and over 10 per cent in the preceding three years. The government is seeking to reduce the shortfall by improving revenue collection, raising water and electricity prices and cutting expenditure.
There are concerns that growth outlook “could deteriorate further into 2017 with evidence of increasing strain in the corporate sector.
Analysts say, while increased oil production would provide a boost over 2016-2018, stricter lending conditions are becoming a more prominent threat to economic growth.
But the Central Bank Governor is upbeat of the country’s growth prospects for the rest of the year, which he says would be impacted positively by the stability in the foreign exchange market, continued improvement in consumer and business sentiments, and the realisation of additional oil and gas production from the TEN oil fields.
“However, risks to the growth outlook, such as the tight credit conditions, electricity supply shortfalls and continued fiscal tightness, may moderate the pace of economic expansion,” he cautioned.
Foreign exchange volatilities
He said volatilities in the foreign exchange market in the first half of the year has subsided significantly alongside relative stability in the local currency, which was supported by the tight policy stance and improved foreign exchange inflows.
On the interbank market, the cedi cumulatively depreciated by 3.3 per cent against the US dollar in the year to June 2016 compared with 26.1 per cent over the same period of 2015.
In the outlook, the tight policy stance, inflows from the cocoa pre-export finance facility and issuance of the Eurobond in the last quarter are expected to boost reserves, improve liquidity on the foreign exchange market and support the disinflation process over the forecast horizon.
Dr Issahaku said he was hopeful that in the near term, the tight policy stance and stability on the foreign exchange market alongside easing inflation expectations, and generally improving fundamentals should provide additional momentum to the disinflation process over the forecast horizon.
“The MPC therefore, views the current monetary policy stance as appropriate since inflation levels remain above the medium-term target band of 8±2 per cent”.