Prime rate to remain unchanged
For a second successive time, the central bank might have to leave its key monetary policy rate unchanged at 17%, with the balance of risks remaining mixed.
Major issues expected to be addressed by the MPC this time round include a lowering consumer confidence, concerns about uncertainties at the global commodity markets front, and the persistent turbulence in the international financial markets which appears to be having a toll on the fortunes of the local stock market. The external payments position remains in a fix, as favourable prices of cocoa and gold against high crude prices in the last quarter of 2008 have given way to falling cocoa and gold prices and a simultaneous fall in crude prices.
The ongoing re-alignment of exchange rates after the global turmoil is also another area of concern. Like other hitherto relatively stable currencies such as the Naira, the local cedi has been overtaken by the happenings on the global currency markets, falling by over 6% and 5% to the dollar and pound respectively since last January.
Ghana’s fiscal position has also not been impressive in the past few months, with the country said to be running a fiscal deficit of over 12% to GDP, and this has resulted in a decline in the nation’s credit ratings.
There is no doubt that, fiscal consolidation and monetary tightening are necessary to place the economy firmly on the path of continued disinflation, and all things being equal, the MPC is not expected to depart from this path.
However, expectations of a fall in inflation in the second quarter of the year, as a result of the early harvest and a near-stable crude situation baring any geopolitical disruptions in the oil regions, could balance the risks anticipated.
The Monetary authority would also have in mind the credit needs of the private sector, and the declining interest in the equities market, and would thus be cautious of raising its benchmark rate any further.
In the circumstance, it is highly probable that the BoG would leave its Prime rate unmoved.
In the past year, the MPC maintained a tight monetary policy stance to steer inflationary expectations towards the lower single-digit path. The MPC had increased the Prime Rate from 16.0% to 17.0% at its second sitting in July 2008. The rate was maintained at 17% at its final sitting for that year in October. Though it worked to anchor inflation at a time crude prices were sky-rocketing, consumer inflation remained in the upper double-digit band most year.
This had been influenced by various factors including a persistent rise in crude prices and the pass-through to domestic prices, an increasing budget deficit and a strong domestic demand.
The outlook for 2009 has been difficult to predict in view of the recent uncertainties at the global financial market front, and the central bank is expected to remain on top of the current issues as they have done since the first MPC meeting in 2002.