Bank of Ghana holds policy rate unchanged at 22%
The Bank of Ghana’s Monetary Policy Committee (MPC) kept the policy rate unchanged at 22.0 per cent following improvement in the inflation outlook as the cedi strengthens against the major trading currencies.
Central Bank Governor Dr Henry Kofi Wampah said the Committee observed that although inflation expectations were still elevated, the pressures in the outlook for the medium-term were waning.
“This is as a result of the tight monetary policy stance, continuing fiscal consolidation and the recent recovery of the cedi,” Dr Wampah said.
The local currency recovered strongly against the major currencies in July 2015.
The cedi was trading at 4.33 to the US dollar as at June 30, 2015 (year-to-date depreciation of 26.2 per cent). However, as at July 14, 2015, it was trading at GH¢3.31 to the US dollar (year-to-date depreciation of 3.4 per cent).
Dr Wampah said the fiscal consolidation observed since the beginning of the year has continued.
For the period January-April 2015, total revenue and grants exceeded targets while expenditures were broadly on target. These developments resulted in a fiscal deficit of 2 per cent of GDP, within the programme target of 2.6 per cent of GDP.
He said the tight monetary policy stance, evidenced by tight liquidity conditions in the banking sector, has contributed to the improvement in the inflation outlook.
Consequently, the latest forecasts suggest that the attainment of the medium term inflation target of 82 per cent has shifted from the third quarter of 2017 to the fourth quarter of 2016.
“This notwithstanding, the sources of upside risks to inflation over the forecast horizon continue to hinge on exchange rate dynamics and its implications for prices, petroleum and utility price adjustments, and fiscal impulse,” he said.
Dr Wampah said the stock of gross foreign assets at the end of June 2015 was $4.5 billion, enough to finance 2.9 months of imports of goods and services.
He said going forward, the anticipated inflows of more than $4 billion from the Eurobond issue, syndicated cocoa financing as well as other programmed inflows in the second half of the year will provide a strong buffer and help sustain stability in the foreign exchange markets.
He said domestic growth conditions remained vulnerable given the on-going fiscal consolidation and the impact of the energy crisis.
The provisional update to the Bank’s real composite index of economic activity (CIEA) indicates a slower pace of growth during the second quarter of 2015 compared to the same period last year.
However, over the medium term, growth prospects remain positive, but there are potential headwinds, including continued energy sector challenges, tight credit conditions, weak consumer confidence, and subdued commodity prices and production.
Dr Wampah said the Monetary Policy Committee has mandated the Bank of Ghana to introduce additional measures to streamline monetary operations.
He said to enhance transparency in monetary operations and improve the transmission mechanism, the monetary policy rate will be merged with the reverse repo rate within 30 days.
The merger of the rate would be immediately followed by the introduction of a 7-day reverse repo instrument in the money market to offer more flexibility in the liquidity management of banks.
In order to improve liquidity in the foreign exchange market, the Bank of Ghana and the Ministry of Finance have agreed to open the 2-year Note to non-resident participation. The modalities for this are currently being worked on.
Dr Wampah said the Bank of Ghana will engage the banks before implementation of the new measures.
Source: GNA