Accra, May 13, GNA – The Bank of Ghana (BoG) has unexpectedly raised its monetary policy rate from 21 per cent to 22 per cent, to strengthen the currency and dampen inflation pressures.
A weaker currency has boosted inflation to 16.8 per cent in April, which was against the government’s year-end inflation target of 11.5 per cent.
Dr Henry Kofi Wampah, Governor of the Bank and Chairman of the Monetary Policy Committee (MPC), who announced the increase in the benchmark rate at the 64th news conference with the MPC in Accra on Wednesday, said although risks to both inflation and growth were elevated, they tilted more to inflation.
The increment, he said may have been higher, but due to good fiscal consolidation over the first quarter of the year the MPC decided on an increase by a 100 basis point.
The Committee he said therefore noted that a further moderate tightening complemented with sustained fiscal consolidation efforts could rein-in inflation and inflation expectations.
‘However, the Committee would continue to monitor the situation and take the appropriate action in consonance with the fiscal consolidation’, he said.
According to Dr Wampah the currency’s slide was one of the factors that the committee considered and explained that maintaining a tight monetary stance would therefore stem fiscal pressures and facilitate the achievement of macroeconomic stability.
He said from December 2014 to April 2015, both the 91-day and 182-day Treasury bill rates fell from 25.8 per cent and 26.4 per cent to 25.1 per cent and 25.8 per cent, while the one year note rate remained unchanged at 22.5 per cent, the three-year bond rate also fell from 25.4 to 22.5 per cent, while the five-year bond rate rose to 21 per cent from 19.0 per cent.
He said although the weighted average interbank rate also declined marginally to 23.3 per cent in April 2014, from 23.7 per cent in December 2014, the average lending rates of the banks have remained stable at 29.0 per cent in March 2015, while the average rate on the three-month deposits declined to 13.0 per cent in March from 13.9 per cent in December 2014.
Dr Wampah said the Committee also noted that for the first quarter of 2015, the BOP registered a deficit of $ 849.4 million, compared with a deficit of $ 920.7 million for the same period in 2014, but attributed the deficit mainly to a sharp decline in the capital and financial account whereas the current account recorded some improvement.
He said the current account deficit narrowed from $ 1.1 billion in the first quarter of 2014 to $ 549.3 million in the same period of 2015, saying this was driven by an improvement in the services, income and transfer account, however, the trade deficit worsened from $ 215.1 million to $ 446.2 million.
The committee, he said also noted that the Capital & Financial account registered a surplus of $ 54.8 million compared with $ 499.5 million in 2014, and the country’s gross foreign assets at the end of April 2015 stood at $ 4.8 billion, representing 3.2 months of imports cover compared to $ 5.2 billion for 2014 which was 3.2 months’ imports cover.
He said throughout these developments in the foreign exchange market indicated a further weakening of the domestic currency in 2015 and from January to May 8, 2015, the cedi cumulatively depreciated by 17.2 per cent against the dollar, compared with 21.3 per cent recorded in the same period in 2014.
He said the April 2015 IMF World Economic Outlook Update, has projected end-2015 growth at 3.5 per cent, in line with earlier forecasts, and despite the first quarter growth outturn, the outlook for advanced economies was reported to be improving, however in emerging and developing economies.
The forecast was for slower growth, reflecting weakening domestic economic conditions in some large emerging markets and oil exporting countries with implications for commodity price trends.
Dr Wampah said the Committee noted the reports caution that although Sub- Sahara Africa was set to register another year of strong growth, although the expansion would be at the lower end of the range, countries with significant exposure to global markets would need to remain cautious to avert the risk of capital flow reversals that may arise from the anticipated changes in the US monetary policy stance.
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