Bank of Ghana maintains policy rate at 26%

DriThe Monetary Policy Committee of Bank of Ghana announced on Monday that its monetary policy remains unchanged.

The bank maintained the policy at 26 percent.

At a press briefing in Accra, the Governor of the central bank, Dr. kofi Wampah explained that in February, “headline inflation declined to 18.5 percent, dragged down by lower non-food inflation. The monthly inflation rates also indicated some slowdown in February, supported largely by stability in the exchange rate.”
Below is the full statement

1. Ladies and gentlemen of the Press, welcome to this MPC Press briefing. We have concluded our 69th regular Monetary Policy Committee (MPC) meetings and I present to you the Committee’s decision and highlights of the deliberations.

2. The Committee has decided to maintain the monetary policy rate at 26 percent.
Price developments, since the January MPC meetings, show that headline inflation moved up significantly to 19 percent in January 2016 from 17.7 percent in December 2015. This was due to the impact of the hikes in utility tariffs and levies on petroleum products. In February, however, headline inflation declined to 18.5 percent, dragged down by lower non-food inflation. The monthly inflation rates also indicated some slowdown in February, supported largely by stability in the exchange rate.

3.Core inflation (CPI inflation excluding energy and utility prices) has trended downwards since December 2015, pointing to some easing of underlying inflation pressures. The drop in both headline and core inflation is encouraging, but the current levels of inflation remain significantly above the medium term target band of 8±2 percent.

4.The latest survey of businesses, consumers and the financial sector show that inflation expectations are still high, driven largely by the upward adjustments in utility tariffs and petroleum prices. Although elevated, there is no clear evidence of a further deterioration in inflation expectations in the near term.

5.Our forecasts indicate that, barring any further shocks, inflation will peak in the first quarter of 2016, and gradually decline thereafter towards the target band by mid-2017, same as our January forecast. The upside risks to the inflation outlook include uncertainties regarding the second round effects of the upward adjustment of the transportation costs and the tight external financing conditions.

6.The January 2016 update of the Bank’s Composite Index of Economic Activity (CIEA) points to some improvement in the pace of economic activity. Also, the latest confidence surveys show that both consumer and business sentiments on general economic conditions are somewhat positive. Despite the modest pickup in the CIEA, general growth conditions remain subdued reflecting the tight policy stance, declining private sector credit growth and lingering concerns about the energy crisis. It is anticipated that the turnaround in the energy situation, additional oil and gas production and improvement in the macroeconomic environment would further boost growth later in the year.

7.Fiscal consolidation continued to be on track. Provisional data on the fiscal outturn for 2015 showed a significant contraction of the deficit to 7.1 percent of GDP compared to 10.2 percent in 2014. Continued commitment to the budget implementation coupled with the tight monetary policy stance is expected to offset some of the inflation pressures through weaker aggregate demand. However, uncertainties regarding movements of crude oil prices and tight external financing conditions may pose significant risks to the budget in terms of lower oil revenues as well as financing of the fiscal deficit.

8.The provisional current account deficit in 2015 improved to 7.8 percent of GDP, relative to 9.5 percent in 2014. This favourable development was attributed to an improvement in the services account which outweighed the worsening trade deficit as commodity prices softened. Gross Foreign Assets as at end February was US$5.4 billion, equivalent to 3.1 months of import cover.

9.The global environment continues to be plagued by uncertainties as growth prospects weaken in the advanced and major emerging market economies. This, in turn, has slowed global demand, resulting in volatilities in the commodities and financial markets amid tightened financing conditions, although the trend has reversed recently. The transmission of risks emanating from these developments has implications for both the fiscal and balance of payments outlook.

10.Since August 2015, the local currency has been relatively stable, reflecting the tight policy stance, improved liquidity on the foreign exchange market and the renewed investor interest in domestic debt instruments. As at March 17th, the Ghana cedi had depreciated by 1.4 percent compared with a depreciation of 11.2 percent in the same period last year. The Bank will continue to use appropriate measures to reduce exchange rate volatilities to support the disinflation process.

11.In assessing the current economic conditions, the Committee views the risks to inflation and growth outlook as balanced. Hence, there is the need to maintain the current monetary policy stance which together with fiscal consolidation would help bring inflation further down.

12.The Committee therefore decided to maintain the policy rate and wishes to reiterate its price stability mandate. The Committee will continue to monitor developments in the economy and take further actions, if necessary, to ensure the attainment of its target within the forecast horizon.

Information Note

The next Monetary Policy Committee (MPC) meeting is scheduled for Friday May 13, 2016. The meeting will conclude on Monday May 16, 2016 with an announcement of the policy decision.


Source: | Ghana

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