The Bank of Ghana (BoG) held its policy rate unchanged at 26 per cent for the fifth time on the back of continued cedi stability and easing inflation pressures.
The Central Bank Governor, Dr Abdul-Nashiru Issahaku, said while headline inflation was trending upwards, reaching 16.9 per cent in August, the Bank’s measure of Core inflation, which excluded energy and utility prices, continued to trend downwards.
He told a media conference after a meeting of the Monetary Policy Committee (MPC) that based on the development, inflation would hit the Bank's target of eight per cent, plus or minus two percentage points, by the second quarter of 2017, rather than the third as previously forecast.
“At this MPC meeting, the inflation forecast showed a slight inward shift in the horizon to the second quarter, instead of the third quarter of 2017,” Dr Issahaku said.
He said the continued monetary and fiscal policy tightness, together with stability in the foreign exchange market should support the disinflation process.
“The upside risks to the inflation outlook are the unanticipated shocks, especially with regard to the intermittent upward adjustments in petroleum and utility prices, and their second round effects,” he said.
Dr Issahaku said 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.
However, tighter fiscal consolidation, declining private sector credit and delayed recovery in commodity prices could temper growth.
On execution of the Government’s budget for the first half of 2016, Provisional data showed a deficit of 3.1 per cent of GDP against a target of 2.6 per cent.
Dr Issahaku said the higher than programmed deficit was primarily driven by shortfalls from income and property taxes and oil revenue, adding, however, that the Government’s expenditures were broadly contained.
He said the deficit was financed mostly from domestic sources that included a drawdown on Government deposits with the Central Bank.
The major risks to the fiscal outlook include uncertainties in the international oil market, continued weakness in tax revenue mobilisation and wage pressures.
“The materialisation of these risks could slow the pace of fiscal consolidation and hinder efforts to restore macroeconomic stability,” Dr Issahaku said, adding that, the sustenance of the fiscal consolidation process was critical to attaining the medium-term inflation target.
Dr Issahaku said the external trade deficit widened in the first half of 2016, on account of lower export receipts, especially for crude oil.
However, its overall effect on the current account balance was moderated by lower outflows from the services account.
The provisional outturn of the current account balance, therefore, improved to a deficit of 2.6 per cent of GDP, compared with 2.8 per cent in the same period of 2015.
On the cedi’s performance, Dr Issahaku said the local currency had been relatively stable since the beginning of the year, cumulatively depreciating by 4.1 per cent as at September 15, 2016 compared with 16.0 per cent depreciation in the same period of 2015.
The Governor said the stability in the cedi 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.
The Committee would continue to monitor developments in the economy and take appropriate actions, if necessary, towards attaining the medium-term inflation target over the forecast horizon, he added.
<<Print>>