The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has maintained its policy rate at 26% for three consecutive times this year, citing declining inflation and stability of the Ghana Cedi.
The policy rate is the rate at which the Central Bank does its overnight lending to the universal banks in the country.
It also influences commercial bank lending rates in the country which are hovering around 29 to 35 percent according to the bank.
With the keeping of the rate, all the 28 banks are expected to keep their base rates unchanged.
Addressing journalists in Accra, the new Governor of the BoG, Dr Abdul-Nashiru Issahaku who took over from Dr. Henry Wampah explained: “Since the last meeting of the committee, there have been two readings of inflation”.
“Headline inflation rose to 19.2 per cent in March, from 18.5 per cent in February. The sharp increase in March was largely influenced by the lagged effect of the upward adjustment in transport costs.”
However, in April, inflation declined to 18.7 per cent following a slowdown in non-food inflation. The monthly inflation rates also slowed, supported by stability in the exchange rate, Dr Issahaku added.
Similarly, he emphasised “core inflation (CPI inflation excluding energy and utility prices) picked up in March largely due to the higher transport costs, but has since returned to a declining path.
In addition, the latest surveys of businesses, consumers and the financial sector conducted in April reflect declining trends in inflation expectations based on positive perceptions about exchange rate movements and improved energy supply”.
Recent developments in prices remain in line with bank’s earlier forecasts that inflation will peak in the first quarter of 2016 and decline thereafter supported by continued policy tightness and stability in the local currency. The latest forecast, according to him reinforces the earlier forecasts that inflation will gradually decline from the second quarter towards the target band by mid-2017, barring any unanticipated shocks.
Dr Issahaku who is also the Chairman of the MPC noted: “In the near term, the tight policy stance and stability on the foreign exchange market alongside easing inflation expectations, and generally improving fundamentals should provide additional momentum to the disinflation process over the forecast horizon”.
The MPC therefore views the current monetary policy stance as appropriate since inflation levels remain above the medium term target band of 8±2 percent.
There are however risks in the inflation outlook. These include unanticipated upward adjustments in utilities and petroleum product prices and possible second round effects from such adjustments on prices. The slow but persistent pickup in food inflation, since August 2014, is also a source of concern for inflation.
The updated Composite Index of Economic Activity (CIEA) indicated a pick-up in economic activity in the first quarter of 2016, although at a slower pace than a year ago.
Indicators that accounted for the growth in the index were industrial consumption of electricity, port activities, cement sales and domestic VAT collections.
In addition, the recent confidence surveys for both businesses and consumers reflect positive sentiments supported by relative stability in the cedi and significant improvement in electricity supply.
African Eye Report
