Wampah Talks Rare Resurgence …As BoG Holds Policy Rate At 21 Percent

Governor of the Bank of Ghana Henry Kofi Wampah believes there is a resurgence for the economy following the severe stress encountered last year when a weak currency and rising inflation distorted both fiscal and monetary expectations.

The local currency depreciated by 26.7 percent between January and June last year but remained relatively stable during the second half, depreciating by 4.5 percent. The cumulative depreciation for 2014 was 31.2 percent compared with 14.5 percent in 2013. In January 2015, the cedi depreciated by 1.3 percent compared with 7.8 percent depreciation a year ago.

At its first meeting -- 63rd Regular MPC meeting -- the Bank of Ghana held the monetary policy rate at 21 percent on account of a fall in last month's inflation, the first decline in more than a year.

Inflation in the past year forced the Bank of Ghana to tighten the policy rate to tame inflation, which at 17 percent reached a 5-year high.

But last month’s inflation reduction, achieved mainly on the back of tight monetary policy stance, improved inflation expectations as well as declining crude oil prices on the world market, ensured that bank of Ghana maintained its key lending rate at 21 percent.

Nonetheless, the Committee expressed concern about the rise in food inflation ahead of the lean season as well as the rising core inflation. However, the central bank’s latest forecasts show that the disinflation is likely to continue through 2015, heading toward the target band of 8.0 ±2 percent later in 2016.

With the country currently plunged into an energy crisis that has seen businesses cut down output largely due to the unavailability of power, analysts who spoke to the B&FT said raising the key policy rate would further harm businesses.

They argued that companies already have to cope with rising operational costs due to reliance on power not supplied by the national grid.

But despite the nagging energy issue, Dr. Wampah told media at Wednesday’s news briefing that business confidence is on the rise.

“The results of the latest Bank of Ghana Confidence Survey conducted in January 2015 indicate that consumer sentiments continue to improve. The overall consumer confidence index increased to 89.9 in December 2014, up from 85.6 recorded in October 2014. Similarly, the business confidence index moved up to 99.2 in December from 88.7 in September,” Dr. Wampah said.

The central bank’s Real Composite Index of Economic Activity (CIEA), he said, recorded a growth of 7.9 percent year-on-year in the fourth quarter of 2014 as compared with a growth of 6 percent for the same period a year earlier.

Addressing the press after the 63rd MPC meeting in Accra, the governor said: "The risks to the growth outlook remained tilted to the downside due to 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)”.

But Dr. Wampah was quick to add that these developments are expected to be offset by a pick-up in consumer and business sentiments, strong growth in real credit to the private sector, as well as the upcoming Atuabo Gas processing plant and the IMF deal -- which he said will underpin investor confidence.