The Bank of Ghana has today March 26, 2018 reduced the policy rate by 200 basis points to 18 per cent from 20 per cent. The Governor of the central bank, Dr. Ernest Addison, announcing the rate cut at a press conference in Accra, told journalists that the Monetary Policy Committee (MPC) of the Bank cut the rate because the current inflation forecast provides scope for monetary policy to realign interest rates, translate the disinflation gains achieved so far to the market, and reinforce the fiscal consolidation process by easing the burden of interest payments on the budget.
Dr. Addison indicated that prices of Ghana’s main primary exports on the international commodity market have rebounded somewhat over the first two months of 2018.
“Crude oil prices have gained the most since the fourth quarter of 2017 reaching $69.1 per barrel in January 2018, but have since moderated on the back of increased production and rising US shale output. Gold prices have also performed better, largely driven by a weak US dollar and steady purchase and holdings of gold by central banks. Following some price depression in 2017, on account of excess supply, cocoa prices are gradually on the mend. The main price drivers are strong grind data from Europe, and renewed concerns of adverse short-term weather patterns across the West African sub-region,” he said.
He pointed out that broadly, these developments in the external environment continue to transmit favourably to the domestic economy.
He said, on the domestic front, the trend decline in prices observed in 2017 continued into the first two months of 2018 in line with the Bank’s forecasts.
“Headline inflation dropped sharply from 11.8 per cent in December 2017 to 10.3 per cent in January 2018, before edging up marginally to 10.6 per cent in February. The uptick in February was occasioned by the upward adjustment of ex-pump prices of petroleum products following rising international crude oil prices. These developments reflect entrenching macroeconomic stability, continued tightness in policy stance, and relative stability in the exchange rate,” he said.
Among others he indicated that since the last MPC, all of the Bank’s core measures of inflation broadly declined, suggesting subdued underlying inflation pressures.
According to him, the Bank’s main measure of core inflation, which excludes energy and utility, declined from 12.6 per cent in December 2017 to 11.3 per cent in February 2018. Also, the weighted inflation expectations by businesses, consumers and the financial sector derived from the Bank’s surveys continued to decline indicating that inflation expectations remain well anchored towards the medium term target of 8±2 per cent.
“Initial evidence from high frequency indicators show that the growth momentum experienced in 2017 has continued into 2018. The Bank of Ghana Composite Index of Economic Activity (CIEA) grew by 3.1 per cent year-on-year in January. The Bank’s confidence surveys conducted in February also indicated positive sentiments on growth prospects, realization of business expectations and general improvements in the economy,” he added.
He said the pace of growth in key monetary aggregates has continued to moderate consistent with contained aggregate demand pressures. Annual growth in total liquidity slowed to 12.5 per cent in January 2018 from 26.7 per cent a year ago (also partly reflecting the reduction in the number of banks in the monetary survey from 34 to 32).
“There is also a gradual downward migration of all money market interest rates, as well as re-alignment of the yield curve in line with the monetary policy stance since March 2017. The interbank rate, the rate at which commercial banks lend to each other, declined further to 18.3 percent in February 2018 from 19.3 per cent in December 2017 and 25.2 per cent a year ago.
Also, the interest rates on money market instruments declined, especially at the short-end of the market. In February 2018, rates on the 91- day Treasury bill instrument dropped to 13.3 per cent from 15.9 per cent in February 2017,” he noted.
By Emmanuel K. Dogbevi
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