The stability of the Ghana cedi against the major foreign currencies, particularly the United States dollar, is expected to be sustained into the future in what is expected to bring a big relief to businesses.
The positive news about the projected stability of the local currency is buttressed by the maintenance of the monetary policy rate (the rate at which the central bank lends to commercial banks) at 26 per cent, against earlier speculations about a possible increase.
Addressing the media after the 72nd Monetary Policy Committee (MPC) meeting in Accra yesterday, the Governor of the Bank of Ghana (BoG), Dr Nasiru Issahaku, explained that “the projected stability of the local currency will be supported by continued policy tightness, proceeds from the recently issued Eurobond, inflows from donors and the pre-export finance facility for cocoa”.
“The local currency has been relatively stable since the beginning of the year. For instance, in the year to September 15, 2016, the Ghana cedi cumulatively depreciated by 4.1 per cent, compared to a 16 per cent depreciation in the same period of 2015,” he said.
Meanwhile, he gave an assurance that the committee would continue to monitor developments in the economy and take appropriate actions, if necessary, towards attaining the medium-term inflation target over the forecast horizon.
Inflation
Price developments since the last MPC show that headline inflation which stood at 18.4 per cent in June declined to 16.7 per cent in July, before edging up to 16.9 per cent in August 2016.
Dr Issahaku said the slowdown in inflation in July was largely attributed to base effects from non-food inflation which fell by 2.9 percentage points to 21.2 per cent, while food inflation remained virtually unchanged.
“In August, inflation inched up, again due to base effects arising from a downward revision in petroleum prices a year earlier. However, the bank’s measure of core inflation index (CPI excluding energy and utility prices), which reflects underlying inflation, continued to trend downwards. Inflation expectations by businesses, consumers and the financial sector also eased on the back of continued stability in the local currency,” he said.
Dr Issahaku said in spite of the decline from a peak of 19.2 per cent in March 2016, headline inflation still remained high, relative to the medium-term target band of 8±2 per cent.
He gave an assurance that going forward, the continued monetary and fiscal policy tightness, together with stability in the foreign exchange market, should support the disinflation (the reduction in the rate of inflation) process.
He further stated that the upside risks to the inflation outlook were the unanticipated shocks, especially with regard to the intermittent upward adjustments in petroleum and utility prices.
Growth
On growth, the governor said conditions were expected to improve over the medium term, supported by sustained improvement in the power sector and increased oil and gas production.
However, he said, the head winds to growth would include tighter fiscal consolidation (a policy aimed at reducing government deficits and debt accumulation), declining private sector credit and delayed recovery in commodity prices.
Dr Issahaku said provisional data on the execution of the government budget for the first half of 2016 showed a deficit of 3.1 per cent of GDP, against a target of 2.6 per cent.
He explained that the higher-than-programmed deficit was primarily driven by shortfalls from income and property taxes and oil revenue.
Outlook
He said the major risks to the fiscal outlook included uncertainties in the international oil market, continued weakness in tax revenue mobilisation and wage pressures.
“The materialisation of these risks could slow the pace of fiscal consolidation and hinder efforts to restore macroeconomic stability,” he warned.
However, he noted that sustaining the fiscal consolidation process was critical to attaining the medium-term inflation target.
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