BoG maintains policy rate at 12.5 per cent

Accra, Oct. 20, GNA – The Monetary Policy Committee (MPC) of Bank of Ghana (BoG) has decided to maintain the policy rate at 12.5 per cent after careful assessment of the economy in terms of the balance of risks to inflation and growth.

In a statement issued in Accra on Wednesday, BoG said, “On the domestic front, inflation remained stable, largely influenced by non-food inflation this time around. Our analysis indicates that inflationary pressures will remain moderate in the last quarter, in line with established seasonal trends”.

It noted that “Indications are that the growth potential in the economy remains strong, despite the downward adjustment of projected GDP to 13.6 per cent from 14.4 per cent in 2011. Developments in the Composite Index of Economic Activity (CIEA) provide evidence that the pace of economic activity remains firm going into the last quarter of the year”.

The statement said: “Consumer confidence improved driven by increases in the consumer welfare sentiments and stable inflation expectations. However, business confidence softened”.

It said, “External trade data for the first nine months of 2011 showed that the balance of trade recorded a provisional deficit of $1.7 billion, compared to a deficit of $2 billion for the corresponding period in 2010”.

According to the statement, “The Gross International Reserves (GIR) of the Bank of Ghana was $4.6 billion as at September 2011, equivalent to 3.5 months of import cover, as at October 13, GIR stood at $5.3 billion, equivalent to 3.8 months of import cover”.

The statement noted that “Asset quality of the banking industry improved. The Non-Performing Loan (NPL) ratio improved marginally to 16 per cent at the end of August 2011, compared with 16.4 per cent at the end of August 2010. The banks were also solvent, as the industry achieved a Capital Adequacy Ratio (CAR) of 16.9 per cent, well above the 10 per cent statutory threshold”.

However, it said ,“The survey of credit conditions in the banking industry conducted by BoG in September showed a marginal tightening of credit stance for enterprises and households – a reversal of the easing credit stance recorded in previous surveys. Non-price factors such as the requirement of additional collateral security and credibility of cash flows were used to reject loan applications. The survey also revealed that majority of banks expected inflation to remain below 10 per cent for 2011”.

It said, “Provisional data on the execution of the budget showed that total revenue and grants for the first three quarters of 2011 amounted to GH¢7.4 billion, representing a growth of 46.5 per cent over the same period in 2010.

The receipts comprised GH¢6.1 billion of tax revenues and non-tax revenue (including grants) of GH¢1.4 billion. Tax revenue for the period was higher than the corresponding period by GH¢2 billion reflecting improved performance of import duty, import VAT, petroleum tax and domestic direct taxes”.

The statement said, “The total public debt stock as at end of September was GH¢22.2 billion, equivalent to 41.7 per cent of GDP, up from GH¢17.5 billion or 37.8 per cent of GDP in December 2010. Of the total debt, the domestic component was GH¢11.4 billion while the external portion was GH¢10.8 billion ($7.1 billion)”.

However, it said, “Conditions for the external trade sector remained generally favourable, supported by significant export growth.”

It said “Looking ahead, wage pressures, payment of arrears and recent depreciation of the exchange rate have increased the upside risks to inflation.

In the short-term, the impact of these underlying inflationary pressures on the economy remains contained. The bank’s inflation forecasts show that the end year target will be achieved. Movements in the exchange rate remain consistent with the delivery of the bank’s inflation target.

The statement gave the assurance that “the Committee will continue to monitor emerging risks and will implement appropriate measures to counter any adverse effects on macroeconomic stability”.