19 September 2016

Ghana: Monetary Policy Committee of Bank of Ghana Assesses Economy for the Third Quarter of 2016

press release

The 72nd regular meeting of the Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has ended in Accra.

Addressing the media after the meeting in Accra, yesterday, BoG Governor, Dr Abdul-Nashiru Issahaku, said the Committee noted that despite the decline from a peak of 19.2 per cent in March 2016, headline inflation still remained high relative to the medium-term target band of 8±2 percent.

According to Dr Issahaku, the Committee also noted that the inflation forecast had shown a slight inward shift in the horizon to the second quarter, instead of the third quarter of 2017 which required continued monetary and fiscal policy tightness, together with stability in the foreign exchange market to support the disinflation process.

He said the Committee realized that upside risks to the inflation outlook were the unanticipated shocks, especially with regards to the intermittent upward adjustments in petroleum and utility prices, and their second round effects.

He said the Committee observed that the updated Composite Index of Economic Activity (CIEA) for July 2016 reflected an increased pace of growth, relative to same period in 2015, with port activities and industrial consumption of electricity being the key indicators which contributed to the pickup in economic activity.

However, the BoG Governor said, in the latest surveys, it came to the attention of the Committee that business and consumer sentiments on the economy were mixed and that while consumers expressed optimism, business perceptions about the general economic situation were modest due to their unrealized expectations.

Dr Issahaku said data available to the Committee indicated that growth conditions were expected to improve over the medium-term, supported by the sustained improvement in the power sector and increased oil and gas production, adding, however, that the headwinds to growth included tighter fiscal consolidation, declining private sector credit and delayed recovery in commodity prices.

He disclosed that Provisional data on execution of the government budget for the first half of 2016 had shown a deficit of 3.1 per cent of Gross Domestic Product (GDP), against a target of 2.6 per cent.

He explained that the higher-than-programmed deficit-- financed mostly from domestic sources that included a drawdown on government deposits with the central bank-- was primarily driven by shortfalls from income and property taxes and oil revenue, noting, however, that government expenditures were broadly contained.

According to Dr Issahaku data available to the Committee cited uncertainties in the international oil market, continued weakness in tax revenue mobilization and wage pressures as major risks to the fiscal outlook, and that the materialization of these risks could slow the pace of fiscal consolidation and hinder efforts to restore macroeconomic stability.

He said the Committee noted that sustaining the fiscal consolidation process was critical to attaining the medium-term inflation target.

On Ghana's balance of payments, the BoG Governor said the Committee identified weakened global growth prospects, following Britain's exit from the European Union and expectations of sustained low and negative interest rates across global financial markets inching closer to a year-end rate as developments that could have negative implications for Ghana.

He disclosed that in the first half of 2016, Ghana's external trade deficit widened on account of lower export receipts, especially for crude oil.

However, he said, the overall effect on the current account balance was moderated by lower outflows from the services account, adding that the provisional outturn of the current account balance improved to a deficit of 2.6 percent of GDP, compared with 2.8 percent in the same period of 2015.

Turning to the local currency, Dr Issahaku said the Committee noted that the local currency had been relatively stable since the beginning of the year.

He said from January to September 15, 2016, the Ghana cedi cumulatively depreciated by 4.1 per cent compared with 16.0 per cent depreciation in the same period of 2015.

This, the BoG Governor explained, was achieved on the back of tight policy stance and improved foreign exchange flows.

He said the stability of the currency was expected to be sustained, supported by the continued policy tightness, proceeds from the recently issued Eurobond, inflows from donors and the pre-export finance facility for cocoa.

Source: ISD (G.D. Zaney)

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