The Monetary Policy Committee (MPC) of the Bank of Ghana has voted to maintain its policy rate at 26 percent, despite fears over the recent increases in petroleum prices and utility prices feeding into inflationary pressure.
Chairman of the MPC Dr. Kofi Wampah, addressing a press conference on Monday morning, said the risks posed by petroleum prices are mitigated by the lower crude oil prices on the world market, and an improvement in the country’s energy supply situation.
December’s inflation rose to 17.7 percent from 17.6 the previous month, and given the fact that the prices of utilities and petroleum products were further hiked some analysts were anticipating the policy rate to be increased to tame the inflation pressure.
However, Dr. Wampah stated that, in assessing the economic conditions, the Committee noted that policy-tightening in the September and November meetings took into account the expected increases in utility prices; and as well the raise in monetary policy in the US, adding that the transmission of these impulses are still working through the system.
The increase in last month’s inflation, Dr. Wampah added: “indicates some moderation in price movements over the previous month. The slower pace of inflation reflects the tight monetary policy stance and ongoing fiscal consolidation…our latest survey shows that inflation expectations have broadly moderated.
“Notwithstanding the unanticipated adjustment in petroleum prices and its possible pass-through effects, our inflation forecast horizon remains broadly unchanged for delivery of the medium-term target of 8±2 percent in early 2017 -- barring any further unanticipated shocks.”
The International Monetary Fund (IMF), in its latest report on the country’s Extended Credit Facility (ECF), asked the central bank to be prepared to tighten monetary policy further should the risk to inflation remain unduly elevated.
“In light of this assessment the Committee sees the risks to inflation and growth as balanced, and it therefore decided to maintain the monetary policy rate at 26 percent. The Committee wishes to reiterate that it stands by its price stability mandate and will continue to monitor developments in the economy, and take appropriate actions if necessary.”
Yesterday’s decision announced by the MPC was further helped by the relative stability in exchange rates, with the cedi depreciating about 0.5 percent year-to-date against the dollar compared to a 0.8 percent decline over the same period last year.
The local currency is known for its perennial poor first-half performance, predominantly against the greenback, and the MPC policy rate has been one of the measures employed by the central bank for persuading investors to put money in cedi assets rather than keep the dollar as a store of value.
The central bank governor told newsmen yesterday that “maintaining the tight policy stance, smoothening the supply of foreign exchange and enforcing the repatriation of export proceeds into the banking system -- in line with the Foreign Exchange Act -- are expected to moderate the seasonal volatilities usually experienced in the first-half of the year”.
Source: B&FT online