BoG fortifies cedi defences

Foreign exchange reserves held by the Central Bank have been boosted by inflows from the country’s Eurobond sold last month, putting the Bank of Ghana (BoG) in a stronger position to defend the cedi and calm inflationary pressure.

The reserves jumped from US$4.9billion in June to more than US$5.6billion, BoG Governor Henry Kofi Wampah said on Wednesday. The level is enough to buy more than three months of imports, the traditional target of the BoG. More inflows are expected in this half of the year, “which tends to be better than the first half”, he added.

The International Monetary Fund (IMF) has recommended reserve holdings of around US$8.1billion, or the equivalent of 4.2 months of imports, to limit the cost of a crisis in the event of a large shock to the economy.

Though trading at a more stable rate than last year, the cedi has suffered intermittent volatility in 2013 -- shedding almost 4 percent against the dollar between January-June. This weakness has triggered inflation, which rose to a three-year high of 11.8 percent in July.

A much slower rate of depreciation in the second half, which the BoG can now achieve through a more even intervention in the market, will be benign for the inflation outlook.

Economic growth has also showed signs of picking up, both Vice President Kwesi Amissah-Arthur and Finance Minister Seth Terkper said in Accra at a meeting of the Economic Policy Coordinating Committee, made up of senior Finance Ministry officials and other public sector economic decision-makers.

Mr. Terkper, who will be briefing his colleagues and the President this weekend on the first-half performance of the economy, said he believes resolution of the power crisis has returned growth to an upward trajectory after GDP rose at a much slower rate of 6.7 percent in the first quarter of the year compared to 10.3 percent a year ago.

He also said he expects tax revenues to turn the corner on the back of more robust growth that will be closer to the target of 8 percent of GDP. A shortfall in taxes in the first half of the year led government to introduce new levies and increase other rates as it sought to hang on to a 9-percent-of- GDP deficit target.

“We expect that in the third and fourth quarters the economy will be back on track. As the economy picks up, we expect taxes to also pick up. We are also hopeful that the deficit will be brought under control with respect to most of the overruns,” said Mr. Terkper.