Ghana to hit single digit inflation

Accra, March 27, GNA - Dr Paul Acquah, Governor of the Bank of Ghana (BoG), on Monday said the Monetary Policy Committee (MPC) expected Ghana to hit single digit inflation by December 2006.

Speaking at a press briefing on the outcome of the quarterly review of the economic performance and outlook by the Committee, Dr Acquah, who is the Chairman of the MPC, said if the economy was able to record a single digit, it would serve as a benchmark to further reduce the figure while efforts were made to sustain it.


He said such measures would ensure that the probability of reverting to a higher inflationary figure was minimised. The year-on-year inflation for the period under review declined from 14.6 per cent in January to 12.1 per cent in February. It closed at 14.8 per cent at the end of December 2005.


Dr Acquah explained that the inflationary outturn captured the first round effects of the February re-alignments of domestic petroleum prices by about an average of 10 per cent increase with the international oil prices, which pushed up the monthly increase in the Consumer Price Index to 2.5 per cent from 0.7 per cent in January. The MPC's assessment of the economic development indicated an improvement in the general economic activity as a result of which it maintained the BoG prime rate at 14.5 per cent.


The year-on-year Composite Index of Economic Activity (CIEA) of the BoG increased by 20.37 per cent at the close of December 2005 compared with 14.50 per cent registered for the same period in 2004. Dr Acquah said real sector indicators such as the manufacturing, sales, job vacancies, tourist arrivals and the number of private sector contributors to Social Security and National Insurance Trust (SSNIT) showed an upward shift especially in the last quarter of 2005.

The BoG's survey of business confidence also indicated that business had picked up after softening in the fourth quarter of 2005. "...business confidence has picked up, re-bounding above the third quarter 2005 level, on higher expectations of employment, sales and profits," Dr Acquah said and added, "the overall assessment of the economic prospects by business sector remained positive".


The MPC's report read by Dr Acquah indicated that every sector of the economy recorded an increase in credit but there was continued concentration on the services sector.


The services sector registered 34.7 per cent growth, manufacturing, 12.2 per cent; commerce and finance 11.8 per cent with the import trade sub-sector recording 9.5 per cent growth in credit. The mining, quarrying and construction and the agriculture and fisheries sub-sector registered figures that ranged between 5.0 per cent and 6.5 per cent. A review of the monetary situation also gave indications that the key monetary aggregates continued to grow at an increasingly moderate pace compared to the levels recorded at the end of the first and fourth quarters of 2005.


Annual growth of reserve money increased to 19.1 per cent in February 2006 down from 19.7 per cent recorded for the same period in 2005 while broad money growth stood at 18.6 per cent indicating a decline from 20.5 per cent recorded in January 2005. Interest rates declined from January to March with the benchmark 91-day Treasury Bill Rate moving downward from 11.2 per cent to 9.80 per cent.

The inter-bank overnight money market rates declined from 10.42 per cent to 8.70 per cent while the average base rate quotations of commercial banks also moved downwards from 21.45 per cent to 21.25 per cent.


The yields on government instruments dropped with the interest rate on the two-year fixed rate note reducing from 17.0 per cent in December 2005 and January 2006 to 16.4 per cent in March 2006.


Dr Acqauh said that preliminary results on the implementation of the budget for the first two months of the year indicated a robust revenue mobilisation and an increase in the pace of expenditure. He said total receipts on the basis of provisional banking sector data from January 2006 to February 2006 registered a total receipt of 3,457.0 billion c edis representing an increase of 12.5 per cent above that of 2005.


Tax revenue amounted t 2,770.4 billion cedis representing 2.50 per cent of GDP and a growth rate of 5.8 per cent above 2,617.7 billion cedis recorded for the same period in 2005.

Non-tax receipts also increased to 545.3 billion cedis for the first two months indicating almost double the 278.2 billion cedis collected for the same period last year.


Total payment for the same period was 4,124.0 billion cedis representing 21.4 per cent increase over the outturn for the same period last year.


On commodity prices, Dr Acquah said the price of cocoa on the London International Futures Exchange declined by 0.6 per cent from 866 pounds per ton at the end of February 2006 while the price of gold moved between 550 dollars and 570 dollars per ounce and ended February at 558 dollars after ending 2005 at 507 dollars per ounce. The price indicated 30.0 per cent increase above the price quoted at February 2005.


Dr Acquah said crude oil prices eased from the levels recorded in January 2006 but remained high and still volatile due to geopolitical risks and concern about growing demand and capacity constraints. "Against this backdrop, total export earnings for the first two months of the year, is provisionally estimated at 629.75 million dollars," he noted saying that this was an increase of 40.7 per cent above the 447.0 million dollars recorded for the same period last year. Earnings from cocoa beans and products were 250.0 million dollars from 198.0 million dollars while gold exports amounted to 186.5 million dollars representing 38.4 per cent increase over 2005 figure.

Dr Acqauh said private inward remittances from NGOs, religious groups and individuals among others through the banks and finance companies from 2005 amounted to 4.76 billion cedis, an increase of 58.3 billion cedis over the previous year but 1.39 billion cedis out of the amount represented remittances from individuals.


He said the cedi continued to show stability against the three major currencies on the local foreign exchange market.


"Over the first two months of the year, the cedi remained flat against the US dollar but depreciated by 0.9 per cent and 0.7 per cent against the pound sterling and the euro, respectively." Dr Acquah said the local forex bureaux operators had over the period conducted themselves professionally but expressed disappointment over their inability to use a common logo agreed by stakeholders for the industry.


The Governor said the influx of foreign banks was healthy for the banking industry and created a rich mix of banks from Europe, Asia and Africa.