Despite the world financial market turmoil, the country's economy remains robust and resilient to the effects of the fallout, Dr. Paul Acquah, Chairman of the Monetary Policy Committee (MPC), said on Tuesday.
Speaking at a press conference after a meeting of the MPC, Dr Acquah said a review of the performance of the economy showed that the effect of the turmoil had been minimal.
The world has been hit in the past three months by extraordinary turmoil in international financial markets, leading to recession in industrial countries with spill over effects globally.
This has led governments across the world to adopt various measures, including large injections of liquidity, capitalisation and partial nationalisation of banks, the provision of government guarantees to assure depositors.
“We have reviewed the possible channels of transmission of the crisis to the domestic environment. From our assessment of the recent performance of the economy, the effect of the turmoil has so far been limited,” he said.
The country could be affected through the exposure of banks, fall in demand for commodities, especially gold and cocoa, tightening of donor inflows, low level of remittances and reduced investment inflows.
Dr Acquah said Ghanaian banks' investments exposure abroad were currently within internationally acceptable prudential limits and were being held with reputable financial institutions.
Besides, the measure of the foreign exchange risk indicates that the banking system is not over exposed while external borrowing by banks to fund their activities is less than five per cent of total bank funding requirements, an indication of their predominant reliance on domestic deposits.
“Also, given the existing levels of outstanding borrowing only a recall of a significant proportion in excess of 50 per cent in exceptional circumstances would have a material impact on the capital adequacy ratios of banks in the industry,” Dr. Acquah said.
However, he said, existing credit lines could be possible source of some pressure since data indicated that banks maintained credit lines with reputable financial institutions that amounted to less than five per cent of existing total trade.
This means that a freeze would be a source of some funding pressures.
Dr Acquah said the economy could be affected in the medium to long term when there was a slowdown in demand for commodity with the global recession and spiral in oil prices.
There is also the fear of tightening of donor flows and remittances as well as reduced investment inflows in developing countries.
“And all these would have implication for prices, macroeconomic balances, and prospects for growth,” he said.
“For the year 2008, the current assessment is that economic activity has continued to be at a reasonably fast pace with strong export growth and underpinned by expansion in domestic demand and fiscal stimulus,” he added.
However, Dr Acquah said, there was the need for sound fiscal and monetary policies to bolster the competitiveness of the economy to secure private investment and donor flows, ensure a robust and well supervised financial sector, reduce vulnerability to shocks and strengthen the basis for growth.
In the light of these reasons the MPC maintained the Prime Rate at 17.0 per cent.