The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has reduced the policy rate from 23.5 percent to 22.5 percent today.
The decision was based among other things on the easing of headline inflation and inflation expectations in the country.
Announcing the decision at a press conference in Accra today, Dr Ernest Addison explained: “Headline inflation shows a slight uptick after six consecutive months decline from 17.2 percent in September 2016 to 12.8 per cent in March 2017”.
The policy rate is the rate at which the BoG does overnight lending to the commercial banks. With this reduction, it is expected that all the banks in the country should reduce their base rates.
However, in April, the rate inched up to 13.0 percent on account of an upward adjustment in transport cost, which reflected in higher non-food inflation, he told the journalists.
He added: “The Bank’s measure of core inflation, which strips out energy and utility price changes from the consumer basket, has followed a similar pattern, and was estimated at 13.7 percent in April 2017 from 14.6 percent in December 2016.
The results of the latest survey conducted by the Bank point to continued declines in inflation expectations by businesses and the financial sector”.
The forecast horizon for inflation remains unchanged and inflation is expected to trend downwards towards the medium-term target of 8±2 percent in 2018, Dr Addison noted.
The recently released GDP data from the Ghana Statistical Service showed that growth outcome for 2016 was slightly weaker than expected, mainly due to a significant decline in industrial growth following the adverse effects of the energy crises and operational challenges in crude oil production for most part of the year.
“The overall GDP growth for 2016 turned in at 3.5 percent against an envisaged growth of 4.1 percent. 6. Information from the updated Composite Index of Economic Activity (CIEA), suggests a faster pickup in economic activity during the first quarter of 2017, relative to the same period last year”.
Growth in the CIEA was mainly driven by private sector credit and exports. The Bank of Ghana’s business and consumer confidence surveys produced mixed results. While business confidence showed a marked rebound, driven in large part by their expectation of an improved macroeconomic environment, consumer confidence recorded a marginal dip driven by softening welfare sentiments.
Broad Money (M2+) expanded in line with increased extension of credit to the private sector as real lending rates declined in response to the ease in the stance of monetary policy announced in March 2017. Credit to the private sector and public institutions gained some momentum.
For the 12-month period to March 2017, credit to the private sector and public institutions increased by GH¢5.0 billion (19.4% y/y growth) compared with GH¢2.6 billion (11.2% y/y growth) recorded for the same period in 2016.
The private sector accounted for 86.1 percent of the total credit flow. In real terms, credit to the private sector also showed a rebound, increasing by 5.9 percent, on year-on-year basis, in March 2017 after contracting by 6.9 percent same period last year.
The latest credit conditions survey by the Bank of Ghana conducted in April 2017 showed a general easing of credit conditions for enterprises and households. But credit for house purchases tightened in the first quarter of 2017.
Reviewing the performance of the economy in the first four months, Dr Addison observed: “The volatility in the foreign exchange market observed at the last MPC meeting has eased significantly, supported by improved foreign exchange liquidity conditions and the outturn in the trade balance, with a more positive outlook based on significant expected inflows”.
“Cumulatively, the Ghana Cedi has depreciated by 1.0 percent against the US dollar in the year to 18th May 2017, compared with 3.5 percent reported at the last MPC round”.
African Eye Report