Prime Rate now 13.5 per cent

Accra, July 16, GNA - The Monetary Policy Committee (MPC) of Bank of Ghana (BoG), on Friday reduced the policy rate from 15 per cent to 13.5 per cent in consonance with the anticipated slowdown in inflation in the medium-term.

The 150 basis points reduction in the rate is the third cut in the rate since February and comes on the back of the lowest inflation rate in three years hanged at 9.52 per cent.

The policy rate, the rate at which commercial banks could borrow from the BoG, therefore, brings the cumulative reduction in the monetary policy rate for the year so far to 450 basis points.

Mr Kwesi Bekoe Amissah-Arthur, Governor of BoG and Chairman of MPC announced this at a press conference in Accra.

He noted the public concern of the 91slow pass through' of the lower policy rate to the lending rates of banks and gave the assurance that BoG was committed towards working with the commercial banks to shorten the transmission lag.

Mr Amissah-Arthur expressed optimism that inflation would remain broadly around the central target of 9.2 per cent, a figure which according to him, was expected to be achieved partly through lower food and petroleum prices as well as fiscal consolidation.

"The MPC recognises that conditions exist for the maintenance of low inflation, noting that food prices would continue to be stable during the third quarter, which is the traditional harvest season. Favourable terms of trade would continue to support a stable exchange rate. The MPC is committed to react quickly to contain any emerging risks to inflation," he said.

Concerning government's budgetary operations, Mr Amissah-Arthur said the overall Net Domestic Financing was in line with the programme target but recommended that import exemption regime would have to be examined to harmonise with budgetary objectives.

Other areas of concern, he noted, were uncertainty regarding the level of the public wage settlement and the problem of arrears accumulation especially with respect to statutory funds, which had negative implications for capital spending, private sector growth, stability of the banking system and the overall economic growth.

Mr Amissah-Arthur disclosed that a survey conducted by BoG in June to gauge the sentiments of businesses and consumers provided mixed signals.

"While overall business confidence rose by 1.2 points in June, overall consumer confidence declined by 5.2 points," he said adding that the deterioration in consumer sentiments reflected pessimistic assessments of changes in household finances, possibly due to the increase in utility tariffs that was announced.

On government's fiscal operations, Mr Amissah-Arthur said total receipts up to June amounted to GH¢3.3 billion compromising GH¢2.7 billion in tax revenue and GH¢500.8 million in non-tax receipts.

He said due to lower collections of import duties and import Value Added Tax, Customs, Excise and Preventive Service collections were below target, recording GH¢1.0 billion.

"Total government expenditure up to June amounted to GH¢3.8 billion out of which GH¢688.9 million was for interest expenditure and GH¢3.1 billion for non-interest expenditure," he added.

On the banking sector developments, Mr Amissah-Arthur noted that the banking system showed strong asset growth and improvement in financial soundness indicators with the total assets of the industry growing by 27.1 per cent to GH¢14.6 billion at the end of May 2010 from GH¢11.5 in May 2009.

He said the credit conditions survey conducted by BoG in June 2010 showed a general net tightening of credit to small and medium sized enterprises and households for mortgages.

"Loans to small and medium sized enterprises and households were however tightened through increases in margin for riskier loans and security and collateral requirements. Large enterprises however benefited from a marginal ease in bank's credit stance," he said.

Mr Amissah-Arthur attributed the marginal ease in the bank's credit stance to large enterprises to decreases in margins on average loans and maximum size of loan or credit lines.

On the global economic developments, he said, the uncertainty in Europe's financial markets, the weak United States growth and employment prospects as well as slower than expected output growth in Asia were doubts raised over the sustainability of the global economic recovery.

He said uncertainty characterising growth prospects of the advanced economies have had a downward impact on crude oil prices, which peaked around 85 dollars per barrel in the first week of April 2010, adding it had declined to 77 dollars per barrel since then.

"Continued slow pace in the recovery of the global economy is likely to reduce the pressure on crude oil prices in the second half of the year," he said.