<<Print>>

The monetary Policy Committee (MPC) of the Bank of Ghana has reduced its Policy Rate by 200 basis points from 18 percent to 16 percent in line with the prospects for a continuation of the disinflation process and improvements in economic activity and output growth. This is the biggest cut in a long while. The prime rate informs the interest rate the banks charge on loans. The reduction follows a review of the macroeconomic situation against the background of developments in the global economy and an assessment by the MPC of the developments in the economy with respect to the pace of domestic economic growth, the executive of the budget, the external sector and the outlook for inflation. Announcing this at the first press briefing by the MPC for the year in Accra, the Governor of the Bank of Ghana, Kwesi Amissah Arthur, noted that all the data on the domestic scene, point to steady diminishing inflationary pressures. The rate of inflation which stood at 18% in October 2009 declined to 16.9% in November and then to 15.9% in December 2009. In January 2010, the Ghana Statistical Service reported a further decline in the inflation rate to 14.8%. of the 3.5 percent decline in inflation recorded since October 2009, 18% is attributed to food price changes while the remaining 82% is due to changes in non-food prices. The Governor also revealed that the index of business and consumer confidence has improved relative to conditions that existed at the survey conducted in October 2009. The results of the most recent surveys conducted in January showed that the overall assessment of economic prospects by businesses and consumers are strongly positive. The Composite Index of Economic Activity (CIEA), which is constructed by the Bank of Ghana and used in gauging the trend of economic activity, declined by 2.1% and 0.3 per cent in the first and second quarters of 2009. During the third quarter of 2009, the CIEA suggested that output grew by 2.3% and by a further by 9.9 percent during the fourth quarter of 2009. In year-on-year terms, the index rose by 9.9%. Mr. Amissah Arthur noted that Private remittances in 2009 amounted to US$1.57 billion (a growth of 16.6%) compared to US$1.68 billion in 2008 (a growth of 19.2%). The governor noted that the improvement of the fiscal situation resulted in a reduction in the Public Sector Borrowing Requirement (PSBR) which contributed to the reduction in Treasury bill rates. Between October 2009 and mid February 2010, the benchmark 91 day Treasury bill rate went down by 8.4% to 17.4%. Similarly, the 182 day Treasury Bill rate declined by 10.0% to 18.7%. Available data showed that the rate on the 1-year noted fell by 3% to 18% while the 2-year fixed rate not e went down by 6.5% to 19%, while on the interbank market, the average overnight interbank interest rates fell by 2.7% to 16.2% between October 2009 and February 2010.