The Monetary Policy Committee (MPC) chaired by the Governor of the Bank of Ghana Dr. Paul Acquah has decided on a 1% increase on the Bank's Prime Rate.
The MPC's 1% increase was made to place the economy on the path of continued disinflation, bringing inflation into the middle single digit range within a time horizon of 18-24 months fiscal consolidation.
The increase was also necessary in the light of the 2008 budget along with some monetary tightening to anchor inflation expectations to underpin financial stability and growth.
However, headline inflation remained stable within a narrow band above the single digit target for the year. It stood at 10.2% in September compared with 10.7% at the end of June 2007.
The latest data also indicates that non- food inflation which stood at 13.5% at the end of December 2006 also dropped to 10.9% by the end of September 2007. Food prices also estimated at 7.5% at the beginning of the year have increased consistently to 9.3% at the end of September 2007.
The currency remained relatively stable during the last quarter of the year as against the major trading currencies.
But development in the nominal bilateral exchange rates of the cedi against the three core currencies, the US dollar, the pound sterling and the euro shows that from January- September 2007, the cedi depreciated, cumulatively against all the three currencies by 2.1 %, 6.0% and 10.2%.
At a press briefing in Accra the Chairman of the MPC Dr. Paul Acquah explained that the Gross Domestic Product (GDP) growth has been robust and resilient to the energy supply disruptions and load shedding.
He said the overall strong GDP growth and the weak dollar on the international market have underpinned the current boom in commodity prices. The average weekly price of benchmark Brent closed the third quarter with US$78.33 per barrel.
In September alone, he explained the price rose by 7.6% compared with 3.7% growth in the price of cocoa.
According to the Governor the benchmark of 91-days Treasury bill rate however, rose by 19 basis points in the third quarter to 9.83% following a base point rise in the second quarter and a base point fall in the first quarter.
On the banking industry, Dr. Acquah explained the overall developments in the banking system through September 2007 show a strong asset growth and significant improvement in all financial soundness indicators relative to the June 2007.
According to him total assets of the banking industry grew by 56.2 per cent to GH¢7,114.1 million (51.7 per cent of GDP) at the end of September 2007, compared with 28.4% the same period in 2006 (39.6 percent of GDP).
He added that the average base rate quotations of the banks remained generally unchanged at 19.36% at the end of the third quarter within the range of 18.00 and 21.45, after being revised downwards by 1.41 basis points in the first quarter.
He said banks' credit to the private sector and public institutions also remained robust, increasing by GH¢520.1 million (16.9 %) in the quarter compared with GH¢258.4 million (9.2%) in the second quarter and GH¢269.7 million (13.6 %) in the three of 2006.