Mon, 17 Oct 2011 Business & Finance

Inflation Outlook Worrying

By Daily Guide

The outlook of inflation for the rest of the year and beyond looks worrying, Razia Khan, Head of Research at Standard Chartered PLC has stated.

'With continued foreign exchange appreciation, an open question at this point, and domestic pressures- spending, salaries, elections, utility bills- ramping up, the inflation outlook is more worrying.'

She added that there was 'good news for now, but the more important question is how long will it last?'

Inflation remained unchanged at 8.4 percent in September 2011 though price levels for the month dipped.

Reacting to expectations of the MPC Committee of the Bank of Ghana meeting beginning today vis-à-vis inflation, Mrs Khan said she anticipate that the policy rate of the Bank of Ghana  will remain on hold for now, although the Ghana Cedi was weakening, adding the Central Bank might need to tighten rates in the new year.

She however stated that the decision by the MPC would depend on the global environment.

According to the September 2011 figures released by the Ghana Statistical Service (GSS), food inflation dropped from 3.79 percent recorded in August 2011 to 3.74 percent in September 2011, while the non-food inflation also went down again to 11.30 percent in September 2011 from 11.38 percent In August 2011.

The research guru said that inflation pressure would start in the final quarter of the year and therefore the Bank of Ghana should take comfort from that, and emphasize on the outlook.

The MPC began its 47th regular meeting, the fourth in the year, today October 17, 2011 to review developments in the country's economy for the last quarter.

The seven-member team led by Governor Paa Kwesi Amissah Arthur is also expected to discuss issues that will help preserve the Ghana Cedi which has been experiencing decline for a couple of weeks especially against the US Dollar.

With inflation set to remain within the 8-10 percent band for sometime whilst the local currency continues to remain resolute, the MPC is likely to maintain the prime rate at 12.5 percent.  This means lending rates will be almost the same.

Market watchers are expected to monitor proceedings of the meeting keenly. Some economic indicators such as the country's fiscal and trade deficits, foreign reserves, among other important indicators, are expected to be reviewed by the committee.

The MPC will make the necessary projections for the final quarter of the year. In addition, it will also assess the business risk factors.

As usual, the decision of the MPC will be announced at a press briefing on Wednesday October 19.

Analysts are expected to evaluate the Central Bank's assessment of the economy and suggest appropriate ways that will help stimulate the macro-economy.

The suggestions are expected to help the country ensure a stable and vibrant economic environment where adequate private sector participation is anticipated.

By Charles Nixon Yeboah