The Monetary Policy Committee (MPC) on Wednesday increased the policy rate by 100 basis points to 16 per cent, the first since June 2012, citing upside risks to inflation, weakened business and consumer confidence as well as exchange rate pressures.
�On balance, the Committee held the view that risks to the inflation outlook were elevated and outweighed the risks to growth and therefore decided to increase the policy rate from 15 percent to 16 percent,� Dr Kofi Wampah, Governor of the Bank of Ghana and Chairman of the MPC told journalists at a news conference.
Dr Wampah said the major upside risks to inflation outlook were heightened inflation and exchange rate expectations, lingering fiscal pressures, challenges in the energy sector, weakened commodity prices and the likelihood of full cost recovery in the energy sector.
On assessment to risks to inflation and growth, he said, the Committee took note of the impact of the combined effects of the upward adjustment in petroleum prices and the high twin deficits of 2012 resulting in aggregate demand pressures.
�Food prices continue to pose significant near-term risk to the inflation outlook�, he said.
Dr Wampah said the fiscal outturn for the first quarter pointed to significant revenue shortfalls even though expenditures remained broadly within targets.
He, however, noted that Government had put in place measures to address the revenue shortfalls and to rationalize expenditures to help with the fiscal consolidation efforts.
Dr Wampah said Government had initiated a programme to restructure its debt by substituting the high cost short-term debt with longer-term instruments, adding that the move was expected to reduce the high interest payments.
On the external front, he said, the trade deficit had widened further on the back of a significant deterioration in the terms of trade. �This was on account of low international commodity prices, which have fed through to lower exports receipts, despite imports remaining broadly flat.�
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