Dr Kofi Wampah
The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has increased the rate at which the Central Bank lends to commercial banks from 15 per cent to 16 per cent.
Several industry players projected that the policy rate would be maintained as inflation had been stable for some time now.
The MPC met the media in Accra yesterday to brief them on its review of Ghana’s economic developments for the first quarter of this year.
The committee, chaired by the Governor of the Bank of Ghana, Dr. Henry Kofi Wampah, noted that the prime rate was increased because the risks to the inflation outlook were elevated, adding that those outweighed the risks to growth.
Dr. Wampah said on assessment of risks to inflation and growth, the committee took note of the impact of the combined effects of the upward adjustment in petroleum prices and the high twin deficits of 2012, which resulted in aggregate demand pressures.
He also observed that the committee noted risks emanating from lower commodity prices, energy sector challenges, weakened business and consumer confidence, and tightened credit stance on the growth outlook.
The major upside risks to the inflation outlook, he revealed, were heightened inflation and exchange rate expectations and the lingering fiscal pressures.
Others included the challenges in the energy sector, the effect of weakened commodity prices on the external sector and the likelihood of full cost recovery of the energy sector.
Dr. Wampah further said the fiscal outturn for the first quarter also pointed to significant revenue shortfalls although expenditures remained broadly within targets.
On the external front, he said the trade deficit has widened further on the back of a significant deterioration in terms of trade.
“This was on account of low international commodity price which have fed through to lower exports receipts despite imports remaining broadly flat,” he said.
He said that the combination of these factors resulted in heightened exchange rate pressures in the foreign exchange market although at a measured pace relative to 2012.
“Inflation has also gone up for the third consecutive month raising the central path of the forecast by a percentage point,” the Governor stated, adding that in addition to the increase in policy rate the bank has also introduced changes to its monetary operations.
Additionally, he said the rate at which banks borrow from the Central Bank (also known as reserve repo rate) will now be 200 basis points above the policy rate while the repo rate will be 100 basis points below the policy rate.
Furthermore, he said BoG is changing its mode of presence in the interbank market by introducing an ‘informal standing facility’ to operationalize its policy decisions and enhance its transmission mechanism.
Dr. Wampah further observed that the base rate formula will be implemented by all banks with effect from 2nd July, 2013 to ensure transparency in the pricing credit in the banking system.
He said government initiated a programme to restructure its debt by substituting the high cost short-term debt with longer-term instruments.
“This is expected to reduce the high interest rates payments. It is important to note that government has put in place measures to address the revenue shortfalls and rationalize expenditures including a freeze on new products to help with the fiscal consolidation efforts,” he said.
By Jamila Akweley Okertchiri