BoG reduces policy rate to 13%

Bank of Ghana (BoG), the regulator of banking industry over the weekend reduced the policy rate (13.5%) by 50 basis points (0.5%) to 13%, citing improved economic environment, low inflation, among others. The prime rate is the rate at which the Central Bank does its overnight lending to the universal banks in the country.

The Governor of BoG, Mr. Kwesi Amissah-Arthur, who is also the Chairman of the Monetary Policy Committee (MPC) stressed that 'Given the balance of risks to prices and output growth and recognition of the improved economic environment, the Monetary Policy Committee has decided to reduce the Monetary Policy Rate by 50 basis points to 13 per cent'.

Assessing the outlook for inflation, he explained that the current baseline forecasts for the next 12-months suggest that inflation will remain close to 9 per cent on a year-on-year basis. This he said would be driven by a sustained and stable macroeconomic environment, anchored on a sound monetary and fiscal policy framework. While uncertainties still exist in the outlook, especially in the movement of crude oil prices it is also imperative that expenditure management will continue to be strengthened to sustain the desired inflation profile.

The Ghana Statistical Service (GSS) reports that inflation remained broadly stable in the first quarter of 2011 around 9.1 per cent. The food inflation for the period was 4.7 per cent while average non-food inflation was 11.9 per cent.

We took note that in April end-period inflation declined to 9.02 per cent, an easing in the inflation outcome.

The Composite Index of Economic Activity (CIEA) registered a real growth of 23.7 per cent in year-on-year terms in the first quarter of 2011. This compares with a growth of 9.1 per cent recorded in last quarter of 2010.

All indicators contributed positively to the growth of the index. However the contribution of credit to the private sector by the commercial banks remained weak, Mr. Amissah-Arthur told journalists on Friday, last week.

He added that 'The survey of Consumer and Business sentiments conducted in April 2011 produced mixed outcomes. Overall business confidence increased marginally, driven by the positive assessment by businesses of economic conditions, expectations of future price trends and declining interest rates.

On the other hand, consumer confidence declined, attributed mainly to concerns about global commodity prices and the possibility of further fuel price hikes'.

The Governor observed that interest rates have continued to decline along the entire yield curve, reflecting a continued disinflation process.

Between December 2010 and April 2011, the 91-day Treasury bill rate declined from 12.3 per cent to 12.1 per cent. The 182-day Treasury bill rate also declined from 12.7 per cent to 12.4 per cent.