BoG maintains lending rate at 26%

The Monetary Policy Committee (MPC) of the Bank of Ghana has maintained its main interest rate at 26 per cent.

The MPC cited balanced growth and inflation risks, as fiscal consolidation and improvements in the energy sector as provid impetus to rein in inflation pressures.

Bank of Ghana Governor, Dr Henry Kofi Wampah, said at a news conference in Accra yesterday that the ongoing tight monetary policy stance and fiscal consolidation had moderated price movements.

“The current tight monetary policy stance, supported by continued fiscal consolidation and improvement in the energy situation, would provide the necessary impetus to rein in inflation pressures”, Dr Wampah said.

Maintaining the tight policy stance, smoothening the supply of foreign exchange and enforcing the repatriation of export proceeds into the banking system in line with the Foreign Exchange Act, were expected to moderate the seasonal volatilities usually experienced in the first half of the year.

Economic conditions

In assessing the economic conditions, the Bank of Ghana noted that the policy tightening in the September and November meetings took into account the expected increases in utility prices and the normalisation of monetary policy in the US, he stated, and added “It further observed that the transmission of these impulses are still working through the system”. 

“This includes uncertainties regarding the second round effect of unanticipated petroleum price adjustments, exchange rates movements as well as, worsening external financing conditions. This will, however, be moderated by lower crude oil prices at the import level and improvement in the energy situation," he stated.

The MPC also considered the latest inflation rate of 17.7 per cent up marginally from 17.6 per cent at November and 17.4 per cent in October.

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Governor Wampah indicated that inflation projections also suggest moderate price increases. These slower increases continued in the first quarter of 2016 with a target rate of eight plus or minus two per cent.

The Governor of the Central Bank, however, mentioned some external factors that could pose a threat to the slowing inflation rate.

Medium term

On the Banks Composite index, the governor said the committee observed slower growth in the composite index as compared to the same period in 2014. The committee is of the anticipation that the medium term looks bright.

“These notwithstanding, there are risks to the growth outlook. These include, continuing tightness in the monetary and fiscal policy stance, weak consumer confidence, falling commodity prices and a slack in global growth”, he observed.

“It is expected that the medium-term growth rate will be more positive supported by an improved energy situation and increase in the production of oil and a general improvement in the macroeconomic environment," Dr Wampah said.

According to Governor Wampah, fiscal consolidation remained on track, and added that the first eleven months of 2015, the budget recorded a cash deficit of 5.6 per cent of GDP against a target of 6.8 per cent.

He said sustaining the fiscal consolidation efforts would complement the tight monetary policy stance for the attainment of the medium-term inflation target.

“This would, in turn, help create conditions for long term sustainable growth’, he added.