Ghana Maintains Policy Rate on Account of Exchange Rate Depreciation

Governor of Bank of Ghana, Dr. Ernest Addison

Accra, Ghana, September 24, 2018//-The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has maintained its policy rate 17% for second time, citing disinflation pressures, second round effects of the recent increases in petroleum prices, exchange rate depreciation, effects of recent increases in taxes, and pick up in global inflation and effects of the tight global financing conditions.

The Chairman of the MPC and Governor of BoG, Dr Ernest Addison made the announcement at a press briefing in Accra today. The policy rate is the rate at which the central bank lends to the commercial banks in the country. Keeping the rate at 17% implies that all the commercial banks are expected to keep their interest rates in the country.

He noted: “Since  the  MPC meeting  in  July,  the  Ghana  Statistical  Service  (GSS)  has  produced two reports on inflation which shows inflation varying between 9.6 and 9.9 percent. From the rate of 10 percent recorded in June 2018, inflation eased to 9.6 percent in July and then Edged up to 9.9 percent in August.

Food inflation turned in at 7.9 percent in August from 7.3 percent recorded in June 2018 while non-food inflation eased to 10.8 percent from a rate of 11.2 percent in June 2018”.

Dr Addison added that the Bank of Ghana’s measure of core inflation, defined to exclude price changes of energy and utility items from the consumer basket, followed a similar pattern.

This core measure also declined from 11 percent recorded in June 2018 to 10.6 percent and then rose to 10.8 percent in August, according to him.

“Economic activity has continued to strengthen. The Bank’s real Composite Index of Economic Activity (CIEA) recorded an annual growth of 6.6 percent in July 2018, the highest in eight months, compared to 2.1 percent in the corresponding period of 2017.

This was mainly supported by strong export growth, domestic VAT, industrial consumption of electricity, and tourist arrivals”.

He was quick to add that overall, GDP growth is expected to remain steady and broad-based, estimated at some 6.8 percent by end-2018.

“Measures of business and consumer confidence surveys conducted in August by the Bank of Ghana showed an easing of confidence. While news of the depreciation of the local currency dominated the headlines, businesses were also concerned about the potential impact of the recent volatility in the exchange rate on their operations”.

Reviewing the health of the Ghanaian economy for the first seven months, Dr Addison told the journalists: “Money market interest rates across the maturities generally tightened in August 2018”.

The 91-day Treasury bill rate increased to 13.3 percent from 12.8 percent a year ago. Similarly, the 182-day instrument increased to 13.9 percent from 13.5 percent.

Rates on the secondary government bond market have begun to increaseas well, reflecting tight financing conditions. The yields on the 7-year, 10-year and 15-year bonds all moved upwards to 19.1, 19.2 and 19.2 percent in August 2018 from 18.1, 15.5 and 18.2 percent, respectively, in June.

On the other hand, the weighted average interbank rate, the rate at which commercial banks lend among themselves, declined further to 16.2 percent in August 2018 from 21.0 percent a year ago.

The average lending rates of the banks declined to 27percent in August 2018 from 29.8 percent in August 2017.

The strengthening of the US dollar in the international markets has exerted pressure on currencies in EMDEs, including Ghana.

In the year to September 20th, the cedi cumulatively depreciated by 7.3 percent, performing better than observed in peer EMDEs. In the same period last year, the currency depreciated by 4.7 percent/

The cedi depreciated by 5.5 percent and 5.5 percent against the pound and the Euro respectively over the same period. The cedi remains competitive as indicated by developments in the real effective exchange rate. The real effective exchange rate, in trade-weighted terms, remained within the desired band, indicating that they are broadly aligned with the underlying fundamentals.

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