The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has maintained the policy rate at 22%, citing domestic fiscal pressures such as exchange rate fluctuations, volatility in commodity prices, and the anticipated change in US monetary policy.
The policy rate is the rate at which commercial banks borrow from the central bank. It also has effect on interest rates.
As the rate is maintained, it means that all the 27 commercial banks in the country are also expected to hold on to their base rates.
The Chairman of the MPC, Dr Henry Wampah, who is also the Governor of BoG explained: “Inflation continued to rise since the last MPC round. Headline inflation moved up from 16.7 percent in March to 16.9 percent in May 2015.
This price development is largely influenced by the pass-through of the currency depreciation and continuing cost-push inflation. Furthermore, core inflation (CPI excluding energy and utilities) continued to rise, signaling underlying inflation pressures”.
He observed that though inflation and inflation expectations were still elevated, the pressures in the outlook for the medium-term were waning. This is as a result of the tight monetary policy stance, continuing fiscal consolidation and the recent recovery of the cedi.
The local currency recovered strongly against the major currencies in July 2015. The cedi was trading at 4.33 to the US dollar as at June 30, 2015 (year-to-date depreciation of 26.2 %). However, as at July 14, 2015 it was trading at GH¢3.31 to the US dollar (year-to-date depreciation of 3.4%), according to Dr Wampah.
“The fiscal consolidation observed since the beginning of the year has continued. For the period January-April 2015, total revenue and grants exceeded target while expenditures were broadly on target. These developments resulted in a fiscal deficit of 2 percent of GDP, within the programme target of 2.6 percent of GDP”.
The tight monetary policy stance, evidenced by tight liquidity conditions in the banking sector has contributed to the improvement in the inflation outlook.
Consequently, the latest forecasts suggest that the attainment of the medium term inflation target of 8±2 percent has shifted from the third quarter of 2017 to the fourth quarter of 2016. This notwithstanding, the sources of upside risks to inflation over the forecast horizon continue to hinge on exchange rate dynamics and its implications for prices, petroleum and utility price adjustments, and fiscal impulse.
African Eye News.com
