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The Bank of Ghana has kept its policy rate unchanged at 12.5%, citing caution over signs that the economy may be at the risk of overheating. Its rate-setting committee concluded at its meeting this week that inflation remains stable, with expectations �well-anchored�, but said new risks have surfaced with recent increases in water and power tariffs, and Parliament�s approval of extra fiscal spending for the rest of the year. Meanwhile, the committee observed that commodities, particularly oil and gold, have continued their volatile trading, reflecting mainly uncertainties in advanced economies. Gold prices surged to record levels in the past weeks as confidence in the dollar plunged. Oil prices have declined recently, but are still high and could be impacted by lingering supply problems in the Middle East and North Africa. �Despite the improved macroeconomic fundamentals, upside risks to inflation are emerging in the form of the adjustment in utility tariffs, wage pressures, and other oil-induced and external pressures that may result in the overheating of the economy,� said Governor Amissah-Arthur at a meeting with the press in Accra. Headline consumer inflation fell to 8.4% in July, a drop of 0.2 percentage points from the June rate, buoyed by stable food prices, a stable currency and a continuously-improving fiscal outlook. On a month-on-month basis, the consumer price index rose 0.63% in July. Effective this month, tariffs on water and power are up by 6.72% and 7% respectively, a development that, depending on the strength of secondary effects, could trigger a bit of inflation in the coming months. The pace of economic activity has picked up, Amissah-Arthur said. Year-on-year growth in the Composite Index of Economic Activity (CIEA), the Central Bank�s gauge of the pulse of the economy, was 20.5% in real terms by June, compared to 19.4% in May. Government spending is rising at a pace higher than programmed, the committee revealed, with the narrow budget deficit recording GH�1.12billion in the first seven months of the year, overrunning its target by GH�270.2million. Revenue and grants amounted to GH�5.8billion between January-July, compared to a target of GH�5.7billion. External data point to a surge in activity, driven by oil, cocoa and gold. Merchandise exports at the end of July went up by 62.3% year-on-year to US$7.5billion. Crude oil receipts were US$1.4billion from 12.6million barrels exported. Gold receipts totalled US$2.8billion, with cocoa beans earning US$1.5billion. Merchandise imports totalled US$8.6billion, showing an annual growth of 45.4%. Imports of crude oil rose by US$229.1million to US$825.9million, while imports of oil products increased by US$180.9million to US$805.8millionn. In addition, there were imports of gas through the West African Gas Pipeline of US$94.5million. Developments in the money market showed continued interest-rate easing across the entire spectrum of the yield curve, and a shift in investor preference towards medium- to long-dated instruments. Last month, the Central Bank raised GH�305.4million at 14.25% through a five-year bond, the first since 2007. The funds have been earmarked for completion of road projects in Accra and Kumasi.