The relative stability of the cedi and the good harvests of food crops contributed immensely to the fall in inflation from 41.9 per cent at the end of March to 21.3 per cent at the end of last year, Yaw Osafo-Maafo, Minister of Finance said on Thursday.
The Finance Minister said this in Parliament when presenting the 2002 government financial statement, adding that this was better than the targeted rate of 25.0 per cent for the end of 2001. The Minister described it as "a budget of growth and take-off."
Mr Osafo-Maafo said during the year under review, monetary policy focused on reducing the rate of inflation as well as the rate of depreciation of the cedi, adding that, "the Central Bank continued to tighten monetary policy through intensified open market operations."
He explained that from the beginning of 2001, money supply grew by ?2,967.0 billion to ?10,195.4 billion. "This implies a year-on-year growth of 38.8 per cent compared with a growth rate of 47.9 per cent at the end of December 2000."
Mr Osafo-Maafo described the rate of monetary growth in 2001 as "relatively moderate" with reserve money growth declining from 57.9 per cent at the end of December 2000 to 27.4 per cent at the end of December 2001.
The expansion in broad money reflected in aggregate demand deposit increase by 130.4 per cent, while savings and time deposits increased by 52.8 per cent. Foreign currency deposits increased by 22.0 per cent during the year under review.
Mr Osafo-Maafo said it is important to note that the strong growth in demand, savings and time deposits as compared to foreign currency deposits, reflects an increase in confidence in domestic assets, which in turn reflects declining inflationary expectations in the economy.
"The steady growth in deposits suggests a deepening in financial intermediation by the commercial banks, which is consistent with the overall improvement in macroeconomic conditions in the country", the Finance Minister said.
He said the exercise of prudent fiscal and monetary policies resulted in the weighted average interest rate on the 91-day Treasury Bill declining from 47.0 per cent at end of June 2001 to 28.9 per cent at the end of December 2001.
The decline in domestic interest rates led to a savings of about ?500 billion on government debt service in 2001. Savings deposit rates also declined from a range of 1.0 per cent to 35.0 per cent at the beginning of the year to 1.0 per cent to 28.0 per cent by the end of December 2001.
Three-month time deposit rates also declined from 27.0 per cent to 40.0 per cent at the beginning of the year to 12.5-34.0 per cent at the end of 2001. Interest rates on Certificates of deposits declined from 15.5 per cent to 40.5 per cent at the beginning of the year to 6.0 per cent to 30.5 per cent at the end of 2001.
The Finance Minister was not happy about the interest rate situation saying, "unfortunately the decline in interest rates has not been fully reflected in the lending rates of banks.
"Bank lending rates have only marginally declined from a range of 39.0 per cent to 55.0 per cent at the end of December 2000 to 39.0 per cent to 53.0 per cent at the end of December 2001.
Between December 2000 and December 2001, the deposit money banks' outstanding credit to public institutions and the private sector increased by 17.7 per cent to ?6,100.9 billion. Credit to the private sector increased by 16.7 per cent while credit to public institutions increased by 38.8 per cent.
On consumer price index dynamics, Mr Osafo-Maafo said the year 2001 began with built-up inflationary pressures in the economy as a result of expansionary demand policies pursued in 2000.
The excessive money supply growth in the last quarter of 2000, the rundown of local food stocks in the lean season and the upward adjustment in petroleum prices in February 2001, all continued to exert further pressures on prices in the first quarter of 2001.
He said the new government, however, reversed this trend through prudent fiscal management and tight monetary policy stance with the government moving away from Central Bank financing of its deficit, resorting more to non-bank financing.
