Our agenda is growth – BoG

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THE Monetary Policy Committee of the Bank of Ghana (BoG) has cut the benchmark interest rate by 100 basis points to 22.5%, a surge in business confidence, increase in credit to the private sector and a downward trend in inflation towards medium-term targets of 8% plus or minus 2 percentage points.

The cut, which economists had expected, reflected a lower threat of inflation despite a rise in the figure to 13% in April due to higher petroleum prices.

“The committee judges that the downside risks to growth outweigh the upside risks to inflation,” Governor Dr Ernest Addison said at his first news conference since President Nana Akufo-Addo appointed him in March.

Fitch ratings agency upgraded Ghana’s outlook to stable on Friday and said it expected a revival of GDP growth and a decline in inflation and the budget deficit.

Dr Addison said his outfit is poised to employ refined tools and resources to secure economic growth while keeping inflation to acceptable limits.

“We are refining the tools we use under the inflation targeting framework and will continue to improve the model underlying inflation forecasting; we will improve the liquidity management process underlying the implementation of monetary policy,” the governor told the press in Accra yesterday.

Dr Addison disclosed that the Bank’s Composite Index of Economic Activity (CIEA) suggested a faster pick-up in economic activity during the first quarter of 2017, relative to the same period last year.
“Growth in the CIEA was mainly driven by private sector credit and exports, “he said.

Prior to the Committee’s meeting last Friday, some banks were in high expectations of a further drop in the policy rate, predicting a 100 basis points decline. This is in spite of the fact that other economists expected a higher drop than what was announced.

“Government borrowing has dropped and the fiscal space has improved, interest rates are coming down and we, therefore, expect some decline in the BoG Policy rate,” one economist said.

Reacting to the latest drop in policy rate, economist Dr Eric Osei Assibey told The Finder, the move was indicative of the new Governor’s readiness to maintain a balance between growth and stability.

“It’s not only about ensuring stability in inflation but also that interest rates must come down so that growth can pick up,” he observed.

It was also in tandem with government’s own growth-oriented economic policies, he stated.
“There is less fiscal dominance now, treasury bill rates have fallen significantly so there isn’t so much pressure on the central bank. Business confidence is also very high thus easing inflationary pressures so all these complement what the economic environment reflects,” Dr Assibey elaborated.

Even though April inflation rose to 13 from 12.8 per cent in March 2017, the Bank maintained its inflation forecast, saying that “inflation is expected to trend downwards towards the medium-term target of 8±2 percent in 2018”.

According to the BoG, business confidence showed a marked rebound, driven in large part by high expectations of an improved macroeconomic environment.

The BoG disclosed that “for the 12-month period to March 2017, credit to the private sector and public institutions increased by GH¢5.0 billion (19.4% y/y growth) compared with GH¢2.6 billion (11.2% y/y growth) recorded for the same period in 2016,” the regulator stated.

The private sector accounted for 86.1 percent of the total credit flow. In real terms, credit to the private sector also showed a rebound, increasing by 5.9 percent, on year-on-year basis, in March 2017 after contracting by 6.9 percent same period last year.

The banking system recorded strong asset growth in the year to April 2017. Total asset base increased by 30.9 percent to GH¢84.5 billion compared to an asset base of GH¢64.6 billion as at April 2016.

Source: Isaac AIDOO || The finder, Accra

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