BOG pursues tight monetary policy - report

Accra (Greater Accra) 2nd July ?99

A report on the review of the economy for the first quarter of 1999, indicates that the Bank of Ghana continued to pursue a tight monetary policy during the period.

This is line with the government's objective of attaining a single digit inflation rate by the end of this year.

The report, which was laid before Parliament on Wednesday, said as a result of the policy, the productive sectors of the economy benefited from adequate credit, even though reserve money fell as net foreign assets declined, broad money virtually remained unchanged.

It said in the quarter, broad money declined by 11.8 billion cedis or 0.3 per cent from 3,903.7 billion cedis.

Savings and time deposits increased by 16.1 billion cedis and foreign currency deposits by 38.5 billion cedis while currency outside the banks fell.

The report explained that the decline in broad money during the quarter was driven entirely by net foreign assets of the banking system, which fell by 318.3 billion cedis.

Net domestic assets on the other hand, increased by 306.5 billion cedis and was underpinned by increases of 222.4 billion cedis in net claims on government and 123.2 billion cedis in claims on the private sector and public enterprises.

The report said during the period under review, total outstanding credit, extended to the private sector and public institutions by the deposit money banks (DMBs), increased by 111.9 billion cedis or 6.6 per cent to 1,927.2 billion cedis.

It said the most significant increases occurred in credit to export trade (29.4 billion cedis), agriculture (24.2 billion cedis), service (21.4 billion cedis) and miscellaneous sector (18.5 billion cedis).

Credit for cocoa marketing declined by 19.5 billion cedis, mainly because of the repayment of a syndicated loan for the sector, the document said.

On interest rate, the report said in response to declining inflation, the Bank of Ghana reduced the bank rate in January by five percentage points from 37 per cent to 32 per cent.

It said money market rates also declined during the quarter, with the 91-day Treasury bill discount rate falling to 25.8 per cent from 26.8 per cent.

The report said the borrowing and the lending rates quoted by the DMBs showed mixed developments.

For borrowing rates, the savings deposit rates moved from range 8.0-25.0 per cent to 8.0-26.0 per cent.

Lending rates, on the other hand, changed from 30.0-48.0 per cent in December 1998 to 33.0-41.5 per cent at the end of March 1999.

The document reported a significant fall in the domestic inflation rate during the period under review and said this reflected the continued tightening of both fiscal and monetary policies and improved food supply.

It said the end-period inflation rate in March 1999 was 13.7 per cent, compared with 20.3 per cent over the same period last year, adding that for the first quarter alone, this represents a two-percentage point drop from 15.7 per cent at the end of December 1998.

The report indicated that domestic production of basic food items improved considerably.

It attributed this to the tightened fiscal and monetary policies, which it said helped to stabilise the exchange rate and thus contributing to the downward trend in the non-food inflation index over the 12 months' period.