MPC announces increase in Prime Rate

Accra, March 17, GNA - The Monetary Policy Committee (MPC) of Bank of Ghana has pegged the prime rate, the benchmark rate used by lenders as a reference to establish the rate to be charged to borrowers, at 14.25 per cent, a rise from the previous figure of 13.5 per cent. Dr. Paul Acquah, Governor of the Bank of Ghana, who made the announcement on Monday, said the Committee's decision to raise the rate was informed by the uncertainties about oil prices, food inflation and domestic demand pressures.

"The balance of risks is on the upside and this makes it necessary that monetary policy stance continues to be tuned to ensure that expectations remain anchored to stability and consistent with a process of disinflation to secure the environment for steady expansion of output," he told journalists at a briefing on the outcome of a four-day meeting of the Committee on Monday. Despite the risks, Dr. Acquah, said Ghana's economy was robust and fairly resilient and economic activity was increasing with relative stability in the exchange markets.

However, he said, headline inflation turned in much higher, drifting away from the steady disinflation path, for the fifth consecutive month fuelled by oil price increases and rising food prices. Inflation currently stands at 13.2 per cent after rising steadily from 12.7 in December.

Dr. Acquah said the Bank's Composite Index of Economic Activity grew by 27.5 per cent in year-on-year terms at the end of January this year. The country's gross international reserve as at the end of February stood at 2.45 billion dollars, equivalent of 2.9 months of import cover for goods and services. The gross reserve as at the end of December was 2.8 billion dollars, translating to about 3.1 months' import cover. The Governor said developments on the foreign exchange market showed that exchange market conditions remained stable and continued to grow in depth.

Dr. Acquah said purchases and sales by banks and forex bureaux in the foreign exchange market for the first two months of 2008 amounted to US$1.59 billion, 38.8 per cent higher than US$1.2 billion for the same period in 2007, and 54.4 per cent above US$1.0 billion recorded for November and December 2007.

Private remittances through the banks and finance companies for the first two months of 2008 amounted to US$1,380.2 million, which represents 48.7 per cent increase over the amount of US$927.9 million recorded for the corresponding period in 2007 Of the total transfers at the end of February 2008, US$275.5 million (or 20 per cent) accrued to individuals, compared with US$202.3 million (21 per cent) in February 2007.

Dr Acquah said cumulatively, for the first two months of 2008, the Ghana Cedi depreciated against all the three major currencies - 0.8 per cent against the US dollar, 0.9 per cent against the Pound Sterling, and 3.6 per cent against the Euro.

This compares with 0.2, 0.5, and 0.6 per cent respective depreciations recorded in the corresponding period of 2007. In trade weighted terms, the cedi depreciated by 0.6 percentage points, compared with a depreciation of 0.4 percentage points for the same period in 2007.

Dr. Acquah said rising price of cocoa and gold had somewhat improved the economy's terms of trade. The price of cocoa, which was US$2,049.0 per tonne at the end of December 2007, increased by 24.6 per cent to US$2,554.0 per tonne at the end of February 2008.

Gold prices also increased by 13.6 per cent from US$830.9 per ounce at the end of December 2007 to US$944.3 per ounce at the end of February 2008.

Initial estimates of trade statistics show that total merchandised exports for the first two months of 2008 amounted to US$868 million compared with US$690.3 million for the same period in 2007. Exports of Cocoa beans and products in January and February amounted to US$227.4 million, lower than US$247.4 million recorded for the same period in 2007. Cocoa purchases through the end of February totalled some 530,000 tonnes, against a target of 618,000 tonnes for the crop season, and 615,000 tonnes purchased for the 2006/2007 crop. On the Government's budget for 2008, the initial banking data on implementation indicate a robust revenue effort and strong growth in expenditures.

Total revenue at the end of February 2008 amounted to GH¢619.9 million (3.8 per cent of GDP) compared with GH¢497.1 million (3.6 per cent of GDP) a year earlier. Total tax revenue for January and February 2008 was GH¢548.6 million (3.4 per cent of GDP), compared with GH¢468.1 million (3.3 per cent of GDP) for the same period in 2007. Non-tax revenue for the period was GH¢30.5 million, compared with GH¢7.8 million for same period in 2007. Total Government expenditure (excluding foreign financed capital expenditure) for the months of January and February 2008 was GH¢985.9 million (6.1 per cent of GDP). This compares with GH¢717.9 million (5.1 per cent of GDP) for the same period in 2007. The preliminary estimates of the budget deficit (excluding foreign financed capital expenditure) amounted to GH¢291.5 million (1.8 per cent of GDP), compared with a deficit of GH¢27.3 million (0.2 per cent of GDP) for the same period in 2007. The deficit resulted in a total public sector borrowing of GH¢396.4 million (2.4 per cent of GDP) for the first two months of 2008, financed in part on the domestic market, mainly in the form of short term securities, which increased by GH¢183.6 million. 17 March 08