Business News of 2014-04-04

Banks to keep more funds in reserves

The Bank of Ghana (BoG) has raised the reserve requirement of commercial banks to 11 per cent from nine per cent in a bid to curb rising inflation and halt the fall of the cedi.

This is in addition to the string of foreign exchange controls introduced by the central bank in February this year to halt the depreciation of the cedi, resulting from chronic trade and current account imbalances.

At a news conference in Accra on Wednesday, the Governor of Bank of Ghana, Dr Henry Kofi Wampah, said the decision to increase the cash reserve requirement for banks was a temporary measure adopted after a tough debate on whether to raise the policy rate again.

"The committee is of the view that the impacts from the recent monetary policies are still working through the system and so it has decided to maintain the policy rate at 18 per cent," he told the news conference, referring to measures introduced over the last few months.

The measures introduced in February were intended “to streamline the collection and repatriation of export proceeds to Ghana.”

The new measures limit access to foreign exchange and restrict trade transactions to the cedi within what was until recently one of Africa’s top performing economies and most popular frontier markets.

Despite those measures, the cedi has depreciated by 17.6 per cent against the United States Dollar for the first quarter of 2014, compared with 1.1 per cent in the corresponding period in 2013. Policy rate still at 18%

The Bank of Ghana maintained its policy rate at 18.0 per cent, following a 200 basis point adjustment in a bid to halt the slide of the cedi.

Dr Wampah, who is also the Chairman of the Monetary Policy Committee, said the committee decided to maintain the rate despite revising Ghana's 2014 inflation target up to around 12 per cent and saying that pressure on growth from external factors remained.

"The committee is of the view that the impacts from the recent monetary policies are still working through the system and so it has decided to maintain the policy rate at 18 per cent," Wampah said.

“In assessing the outlook for inflation, the Committee noted that inflationary pressures have heightened, driven by periodic increases in fuel and utility prices, currency depreciation and supply-demand gaps in the general economy.”

It faces a budget deficit that stood at 10.8 per cent in 2013. The cedi slid around 20 per cent last year and has lost around 17 per cent since January.

The Finance Minister, Mr Seth Terkper, announced no new policies to tackle the deficit in a speech to Parliament on April 1, but said measures already introduced, which included subsidy cuts and new foreign exchange rules, would over time consolidate the fiscal position.

"There has been some reduction in the measured rate of inflation since the measures were introduced but we are not satisfied with that. We noted that there are still vulnerabilities," Wampah said.

Dr Wampah, however, insists that strict adherence to 2014 budgetary estimates is critical for macroeconomic stability.