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07.11.2007 Business & Finance

BoG Takes Steps To Check Inflation

The Bank of Ghana (BoG) has raised the prime rate, the rate at which it lends to commercial banks, from 12.5 per cent to 13.5 per cent to help ease inflation in the economy.

The economy has shown much resilience and exhibited disinflationary pressures, which the central bank wants to strengthen. September inflation is 10.2 per cent, having eased from 10.7 per cent in June.

At a press conference to brief newsmen in Accra yesterday on developments in the economy over the last quarter, the Governor of the BoG, Dr Paul Acquah, announced that the central bank in the next 18 to 24 months would target a single digit inflation.

He said to consolidate disinflation in the economy there was the need for tighter fiscal discipline in the forthcoming budget “along with some monetary tightening to anchor inflation expectations to underpin financial stability and growth”.

The governor said some of the risk factors likely to trigger higher inflation included the crude oil prices, which had reached unprecedented levels and its potential to negatively affect domestic costs.

The adjustments in energy and utility tariffs, the realignment of major trading currencies, as well as demand pressures, were likely to combine to engineer inflationary pressures, Dr Acquah stated.

“In the circumstances and given the balance of risks, the Monetary Policy Committee decided to increase the Bank of Ghana prime rate to 13.5 per cent,” the governor, who also chairs the MPC, announced.

Presenting activities in the economy for the last nine months, Dr Acquah said the credit by banks to the private sector and public institutions increased by GH¢520.1 million (¢5.2 trillion), compared with GH¢258.4 million in the second quarter.

The amount for 12 months ending September this year was GH¢1.348 billion (¢13.48 trillion).

The private sector's share of the credit was GH¢1.045 billion (¢10.45 trillion), representing 77.5 per cent on account of the services sector (29.1 per cent), electricity, personal loans and mortgages and others.

The governor said the banks continued to maintain a strong loan book with non-performing loans declining from the seven per cent position in June to 6.1 per cent at the end of September.

Provisional figures on the execution of the budget indicated a total expenditure of GH¢3.851 billion or 74 per cent of the annual target as of September, resulting in a deficit of GH¢638.3 million (¢6.38 trillion) or 4.8 per cent of GDP.

The governor said the deficit was financed to the tune of GH¢426.2 million through domestic borrowing and GH¢211.5 million through foreign sources.

On the international trade front, the country's total merchandise export amounted to $3.155 billion at the end of the third quarter, with cocoa and gold prices recording 27.9 per cent and 53.5 per cent respectively, Dr Acquah stated.

On the other side, total merchandise imports also grew by 58 per cent and amounted to $5.72 billion at the end of September over the second quarter level of $3.617 billion.

Answering questions on how the country could deal with the surging crude oil prices, the governor agreed that the country could consider the alternative of hedging, an economic strategy to shield future risks.

Story by Samuel Doe Ablordeppey