MPC cuts policy rate to 13 per cent

Accra, May 13, GNA - The Monetary Policy Committee, on Friday cut the policy rate by 50 basis points (0.5 percent) to 13 per cent, citing low inflation and improved economic environment.

"Given the balance of risks to prices and output growth and recognition of the improved economic environment, the Monetary Policy Committee has decided to reduce the monetary Policy Rate by 50 basis points to 13 per cent," Dr Kwesi Amissah-Arthur, the Governor of the Bank of Ghana, told a press conference in Accra on Friday.

He said the inflation target would be driven by a sustained and stable macro-economic environment anchored in a sound monetary and fiscal policy framework.

"While uncertainties still exist in the outlook, especially in the movement of crude oil prices it is imperative that expenditure management will continue to be strengthened to sustain the desired inflation profile," Dr Amissah-Arthur said.

The Governor, who is also the Chairman of the MPC, said the Bank of Ghana's composite index of economic activity registered a real growth of 23.7 per cent in year-on-year terms in the first quarter of 2011 compared with a growth of 9.1 per cent recorded in the last quarter of 2010.

All indicators contributed positively to the growth of the index. However, the contribution of credit to the private sector by commercial banks remains weak, Mr Amissah-Arthur said.

He said that credit to the private sector declined by 4.2 per cent in real terms in the first quarter of 2011 compared with a growth of 9.7 per cent during the fourth quarter of 2010.

Mr Amissah-Arthur said survey of consumer and business sentiments conducted in April 2011 produced mixed outcomes.

He said: "Overall business confidence increased marginally, driven by the positive assessment by businesses of economic conditions, expectations of future price trends and declining interest rates."

He said on the other hand, consumer confidence declined, attributed mainly to concerns about global commodity prices and the possibility of further fuel price increases.

Mr Amissah-Arthur said the current account deficit reduced in the first three months of 2011 to 220.2 million dollars, from 565.8 million dollars in same period 2010.

He said overall balance of payments resulted in a deficit of 154.2 million dollars, compared with a surplus of 152.0 million dollars in 2010.

Mr Amissah-Arthur said Gross International Reserves declined from 4.7 billion dollars at the end of 2010 to 4.5 billion dollars by March 2011.

However, he said, at the end of April 2011, the Gross International Reserves improved to 4.9 billion dollars, representing 3.8 months' import cover mainly as a result of portfolio inflows associated with the issue of the three-year bond.

The reserve figure excludes 112 million dollars being proceeds from the first oil entitlement, currently in an interest-bearing escrow account belonging to the Bank of Ghana.

On government's fiscal operations, Mr Amissah-Arthur said provisional data during the first quarter of 2011 indicated a strong revenue performance.

Mr Amissah-Arthur said the increase in revenue was matched by an equally strong increase in expenditure and total revenue and grants for the first quarter of 2011 amounted to GH¢2.2 billion representing 4.1 per cent of GDP.

He said total customs collections comprising import duties, import VAT, petroleum taxes and NHIL receipts amounted to GH¢807.9 million, an annual growth of 67.3 per cent.

Mr Amissah-Arthur said domestic collections of direct taxes and Value Added Tax for the period amounted to GH¢752.4 million. Grants of GH¢139.2 million was also recorded. The difference was made up of other revenues of GH¢500.5 million.

The Governor said total expenditure (excluding foreign financed capital expenditure) for the first quarter of 2011 amounted to GH¢2.7 billion (5.2 per cent of GDP).

He said wages and salaries and related expenditures amounted to GH¢869.6 million (1.6 per cent of GDP) absorbing close to 42.1 per cent of domestic revenues.

Mr Amissah-Arthur said fiscal operations during the first quarter therefore resulted in a narrow deficit of GH¢819.2 million (1.5 per cent of GDP) compared with a deficit of GH¢621.4 million (1.4 per cent of GDP) for the corresponding period in 2010.

Excluding arrears clearance of GH¢209.9 million, the narrow deficit declined to GH¢552.4 million (one per cent of GDP), he said.

Mr Amissah-Arthur indicated that the deficit of GH¢819.2 million was financed by a net domestic borrowing of GH¢570.6 million (1.1 per cent of GDP) and a net foreign loan inflow of GH¢248.6 million (0.5 per cent of GDP). External Sector Developments

The Governor said total merchandise exports during the period were estimated at US$3 billion, representing a growth of 61.7 per cent year-on-year and was boosted by petroleum exports, higher commodity prices and larger export volumes.

He said export earnings in the first quarter of 2010 were US$1.9 billion. Export receipts of cocoa beans and products amounted to US$859.4 million compared with US$682.5 million for 2010.

Mr Amissah-Arthur said the export value of gold was US$1.2 billion, compared to US$787 million in 2010, while exports of crude oil was estimated at US$484.2 million for the first quarter of 2011.

He said on the other hand, total merchandise imports amounted to US$3.3 billion during the first three months of the year, compared with US$2.5 billion for the same period in 2010, showing an increase of 32 per cent.

Mr Amissah-Arthur said non-oil imports were US$2.7 billion compared with US$2.0 billion in 2010. Oil imports were US$614.4 million compared to US$493.5 million for 2010. This increase in the oil bill was driven mainly by higher prices.

The Governor said the merchandise trade deficit of US$584.2 million for the first quarter of 2010 therefore significantly narrowed to US$248.6 million in the first quarter of 2011, resulting in a lower current account deficit of US$220.2 million compared to the deficit of US$565.8 million in 2010.