BoG reduces base rate to 16.5 per cent

Accra, May 30, GNA - The Central Bank has reduced the Prime Rate from 18.5 per cent to 16.5 per cent amidst what it called prudent implementation of fiscal monetary framework and supporting policies for 2005.

Addressing a press conference in Accra, Dr Paul Acquah, Governor of the Bank of Ghana (BoG) said given the stance of policies, and the current state of economic fundamentals, the balance of risk is in favour of continued progress towards low and stable inflation and relative exchange rate stability.

He mentioned continued liquidity and foreign exchange markets as major factors providing underpinnings for growth.

Dr Acquah described the economic fundamentals as very strong with monetary aggregates on a low growth path, with an improved fiscal and domestic debt position exercising downward pressure on inflationary expectations that would keep the economy on disinflation path. He said the prospective disbursements under the Multi-Donor Budget Support mechanism would be an added stabilizing influence on the national economy.

He said the effects of the corrective domestic petroleum products price increases under the deregulation and market-based pricing system, have worked through domestic cost and price setting and scope for further price mark-ups had appeared to diminish on aggregate demand. Dr Acquah said the reduction of the price of crude oil from the 55 dollars per barrel level to between 48 and 50 dollars per barrel attenuated the downside of risks in the outlook for this year.

This indicates that on the inflation horizon, implementation of the new petroleum pricing mechanism would avoid the bouts of inflation jumps from large petroleum price adjustments, allowing macroeconomic policies to work to achieve the desired single digit inflation target. The benchmark 91-day Treasury bill rate edged up slightly from 17.1 per cent in March to 17.3 per cent by April 2005 as compared to 18.0 per cent in April 2004.

The government notes and bonds remained stable at 20.0 and 21.5 per cent respectively since their introduction in September 2004. But according to the governor, there was significant lengthening of the average maturity of Treasury Bills and notes from 76 days in August 2004 to 174 days in April 2005.

"This has reduced the turnover rate on average from five times to 2.1 times per year, and by implication the fiscal cost and pressure that funding the Public Sector Budget Requirement places on the money market."

He noted that total purchases and sales of foreign exchange by deposit money banks amounted to 1.78 billion dollars for the fourth-month period through April 2005, which compared with 1.18 billion dollars and represented an increase of some 50.0 per cent for the same period in 2004.

Dr Acquah put private inward remittances from non-gvernmental organisations {NGOs), religious groups and individuals amounted to 969 million dollars for the first quarter of 2005 compared to 611 million dollars in the same period last year.

He said the figure was a 58.5 per cent increase above that for last year's level, adding that 31.5 per cent totalling 305 million dollars received from individuals.