By: Fred Yaw Sarpong
The Bank of Ghana (BoG) has maintained the monetary Policy Rate at 21% taking into consideration the risks to the inflation and how it performance going to be in future.
The Monetary Policy Committee (MPC) of the BoG led by the Governor Dr. Henry Wampah announced this in Accra after the committee had reviewed the states of the economy.
According to the committee, the upside risks to the inflation forecasts include the effects of the prolonged energy crisis through increased input costs, higher inflation expectations as well as emerging pressures in the foreign exchange market.
‘On the downside however, the pass-through effects of the falling crude oil price, declining inflation expectations, the on-going fiscal consolidation, and a possible program with the IMF are expected to exert some downward pressure on inflation and drive inflation further down towards the target bands,’ said the MPC committee.
In assessing risks to the outlook, the committee observed the continued vulnerability in the global environment and volatilities in the financial markets which have resulted in declining commodity prices. In particular, the declining trends in crude oil prices continue to worsen the risks facing most oil exporting economies.
It stated that although the declining trend in oil prices could have a favourable effect on the balance of payments, the loss in oil related revenues would impact negatively on the national budget.
The committee however said there was a pickup in the Composite Index of Economic Activity (CIEA) during the last quarter of 2014, boosted by a number of factors including DMBs credit to the private sector, SSNIT contributions and port activity.
It added that this was supported by improved sentiments and optimism by businesses and consumers as well as easing credit conditions to both enterprises and households.
‘However, the risks to the growth outlook remained tilted to the downside due to the challenges in the energy sector, expected fiscal consolidation, a tight monetary policy stance, and the adverse effects of lower international commodity prices (particularly crude oil prices),’ said MPC committee.
It indicated that these are expected to be offset by a pick-up in consumer and business sentiments, strong growth in real credit to the private sector, addition of the Atuabo Gas processing plant, and the IMF deal which will underpin investor confidence.
In assessing the inflation outlook, the committee noted that inflation, which peaked in the last quarter of 2014, has begun to decline in January, 2015 on the back of tight monetary policy stance, base effects and improved inflation expectations.
The committee expressed concern about the rise in food inflation ahead of the lean season as well as the rising core inflation. However, the latest forecasts show that the disinflation is likely to continue through 2015, heading towards the target band of 8.0 ±2 percent later in 2016.