Economic imbalances that existed in at the end of 2016 are giving way to stronger fundamentals with economic activity expected to pick up in the months to come, albeit below potential, the Bank of Ghana’s latest Monetary Policy Report has revealed.
The 2017 budget suggests a return to the path of fiscal consolidation which is expected to foster more stable macroeconomic conditions
According to the report, rigorous and steadfast implementation of the budget will therefore be critical to the outlook.
The Central Bank also said that its May 2017 forecast remained unchanged from the March forecast and inflation was still expected to gradually decline and reach the target band by 2018, barring any unanticipated shocks.
However, surveys conducted in April 2017 showed mixed results on inflation expectations. Businesses and the financial sectors’ inflation expectations improved significantly, while consumer inflation expectations worsened.
The report explained that the favourable inflation expectations outcome from business and financial sector was largely due to relative stability in the foreign exchange market, tight policy stance, as well as renewed confidence in the economy following the successful election and smooth transition of power.
Fiscal consolidation efforts weakened in 2016 on the back of revenue shortfalls and expenditure slippages.
In the first quarter of 2017, provisional data showed that the execution of the 2017 budget was broadly in line with the objective of returning to the path of fiscal consolidation following the fiscal slippages of 2016. Government fiscal operations in the first quarter of 2017 indicate a cash deficit of 1.5 percent of GDP, consistent with the set target for the period.
Monetary and Financial Developments
Annual growth in reserve money slowed to 21.7 percent in April 2017 from 23.2 percent in March. The slower pace of growth was driven mainly by Net Domestic Assets (NDA) of the Bank of Ghana which contracted by 47.8 percent in April 2017, compared with a 6.6 percent growth in March.
Broad money supply (including foreign currency deposits) growth also moderated 28.2 percent in March 2017 from 29.9 percent in February 2017, but was higher compared to 18.1 percent a year ago.
Money and Capital Market Developments
Short-term interest rates in the money market continued to show mixed trends. Treasury securities broadly decliOn an annual basis, the 91-day and 182-day Treasury-bill rates, the 1-year and 2-year notes, and the 3 and 5-year bonds declined by 629 basis points (bps), 782bps, 475bps, 305bps, 300bps, and 600bps respectively to 16.47, 16.77, 18.25, 21, 21.5, 18.75 percent. The 7- year bond rate, however, increased by 175bps to 19.75 percent and the 10-year bond which was issued in November 2016 remained unchanged at 19 percent. ned in April 2017.
Stock market activities also continued to show improvement on year-on-year terms. The market appears to be rebounding as annual changes in the Ghana Stock Exchange Composite Index (GSE-CI) in April moved into positive territory.
The GSE-CI grew by 3.7 percent on a year-on-year basis to close at 1,896.1 points in April 2017. Year-to-date, however, the Index gained 207.04 points from 1,689.1 points in December 2016. On a month-on-month basis, the GSE-CI gained 31.12 points from 1,865.0 points in March 2017.
Exchange Rate Developments
Over the period, January to April 2017, the cedi’s real exchange rate depreciated by 3.1 percent, 3.2 percent and 4.8 percent against the Euro, the pound sterling and the US dollar respectively. In April 2016, the cedi’s real exchange rate appreciated by 13.3 percent, 21.7 percent and 15.5 percent against the Euro, pound and the dollar respectively.
The cedi has since appreciated against the US dollar in May 2017.
Source: Augustine Amoah||The Finder