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MONETARY POLICY COMMITTEE OF THE BANK OF GHANA REVIEWS MONETARY POLICY FOR FIRST QUARTER OF 2016

Inflation

Price developments, since the January meetings of the Monetary Policy Committee (MPC), show that headline inflation moved up significantly to 19 per cent in January 2016 from 17.7 per cent in December 2015.  

 

According to a news release issued and read by Dr Henry Kofi Akpenamawu Wampah, Governor of the Bank of Ghana (BoG) in Accra, yesterday, the increase was due to the impact of the hikes in utility tariffs and levies on petroleum products.

 

The release disclosed, however, that In February 2015, headline inflation declined to 18.5 percent, dragged down by lower non-food inflation while monthly inflation rates also indicated some slowdown in February, supported largely by stability in the exchange rate.

 

Furthermore, the release said, Core inflation (CPI inflation excluding energy and utility prices) had trended downwards since December 2015, pointing to some easing of underlying inflation pressures, noting, however, that the drop in both headline and core inflation was encouraging, but that the current levels of inflation remained significantly above the medium term target band of 8±2 per cent.

 

The release said the latest survey of businesses, consumers and the financial sector showed that inflation expectations were still high, driven largely by the upward adjustments in utility tariffs and petroleum prices and that although elevated, there was no clear evidence of a further deterioration in inflation expectations in the near term.

 

According to the release, the BOG’s forecasts indicated that, barring any further shocks, inflation would peak in the first quarter of 2016 and gradually decline thereafter towards the target band by mid-2017, same as its January forecast.

 

The release explained that upside risks to the inflation outlook include uncertainties regarding the second round effects of the upward adjustment of the transportation costs and the tight external financing conditions.

 

The release said in assessing the current economic conditions, MPC viewed the risks to inflation and growth outlook as balanced.

 

Composite Index of Economic Activity

 

On the Bank’s Composite Index of Economic Activity (CIEA), the release said the January 2016 update pointed to some improvement in the pace of economic activity, adding that the latest confidence surveys showed that both consumer and business sentiments on general economic conditions were somewhat positive.

 

Despite the modest pickup in the CIEA, the release indicated, general growth conditions remained subdued, reflecting the tight policy stance, declining private sector credit growth and lingering concerns about the energy crisis.

 

According to the release, the turnaround in the energy situation, additional oil and gas production and improvement in the macroeconomic environment was expected to further boost growth later in the year.

 

Fiscal Consolidation

 

The release said fiscal consolidation continued to be on track, with provisional data on the fiscal outturn for 2015 showing a significant contraction of the deficit to 7.1 percent of Gross Domestic Product (GDP) compared to 10.2 percent in 2014.

 

It said continued commitment to budget implementation, coupled with the tight monetary policy stance was expected to offset some of the inflation pressures through weaker aggregate demand, adding, however, that uncertainties regarding movements of crude oil prices and tight external financing conditions might pose significant risks to the budget in terms of lower oil revenues as well as financing of the fiscal deficit.

 

Current Account Deficit

 

The release disclosed that provisional current account deficit in 2015 improved to 7.8 per cent of GDP, relative to 9.5 per cent in 2014—a favourable development attributable to an improvement in the services account which outweighed the worsening trade deficit as commodity prices softened.

According to the release, Gross Foreign Assets as at end February was US$5.4 billion, equivalent to 3.1 months of import cover.

 

Global Environment

 

It said although the trend had reversed recently, the global environment continued to be plagued by uncertainties as growth prospects weakened in the advanced and major emerging market economies which, in turn, had slowed global demand, resulting in volatilities in the commodities and financial markets amid tightened financing conditions, adding that the transmission of risks emanating from these developments had implications for both the fiscal and balance of payments outlook.  

 

Local Currency

According to the release, since August 2015, the local currency had been relatively stable, reflecting the tight policy stance, improved liquidity on the foreign exchange market and the renewed investor interest in domestic debt instruments.

 

The release said as at March 17, the Ghana cedi had depreciated by 1.4 per cent compared with a depreciation of 11.2 per cent in the same period last year.

 

The Bank, the release added, would continue to use the appropriate measures to reduce exchange rate volatilities to support the disinflation process.

 

Source: ISD (G.D. Zaney)

 

Created: 23 March 2016
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