March 11, 2016

Prime rate to remain unchanged
Masahudu Ankiilu Kunateh, Ghanadot

The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has decided to leave the prime rate unchanged at 18.5%.

The prime rate is the rate at which the central bank does its overnight lending to the universal banks in the country.

Announcing this at a press conference in Accra yesterday, the Governor of the Bank of Ghana, Dr. Paul Acquah, who is also the Head of the MPC, explained that the indicators of the economic activity and demand growth including imports seemed to be slowing down from the rapid pace recorded in 2008.

Similarly, headline inflation though still high seem to be stabilizing with reduce price volatility observed over the past few months, as has exchange rate volatility in the midst of sharp swings in international currencies.

The Governor observed that headline inflation for March 2009 released by the Ghana Statistical Service (GSS) recorded 20.5% up from 20.3% in February and 19.9% in January, this year.

During this period, non-food inflation pressures had been strong, while food inflation fell from 19.4% in January to 18.5% in March, however, non-food inflation increased from 20.2% to 22.0%, in part due to the strong pass-through from exchange rate depreciation to domestic prices.

He added that the bank’s measure of core inflation (defined to exclude energy and utility) increased from 13.9% in December 2008 to 19.3% in March 2009, though the rate of monthly increase indicates some slowdown.

Dr. Acquah noted that there were relatively sharp movements in the exchange rate of the cedi against the three core currencies namely, the US Dollar, Pound Sterling and the Euro during the first quarter of this year.

The cedi depreciated cumulatively by 13% against the dollar, 9.9% against the Pound Sterling, and 6.6% against the Euro In year-on-year terms, the comparable depreciations were 0.8%, 1.1% and 7.3% respectively against the three core currencies.

He was quick to add that the rate of depreciation declined rather in April, this year with reduced volatility observed in the exchange market.

Additionally, provisional data available at the end of March 2009 show some easing in the pace of expansion of the key monetary aggregates. Broad Money (M2+) grew by 37.8% in the year ending March 2009, compared with 39.2% for the same period last year.

Deposit Money Banks (DMBs) interest rates broadly followed the trend in the policy rate. As average base rate quotations of the banks were revised upward by 170 base points to 28.92% in the first quarter of 2009 and were in the range of 25.5%-32.0%, in addition to 65 basis points revision in the fourth quarter of 2008.

Similarly, average lending rates also rose by 400 basis points in the first quarter of 2009 to 31.25%, and were within the range of 25.5% to 37.0%.

Reviewing the performance of the first quarter of 2009, Dr. Acquah disclosed that the Bank’s Composite Index of Economic Activity (CIEA) showed that the level of economy activity picked up marginally over the level recorded in December 2008.

In year-on-year terms, the index grew by 17.0%, below the trend growth rate of 22.6%, and compared with 30.2% and 20.8% recorded for the same period in 2008 and 2007 respectively.

Whilst in real terms, the index grew by 2.2% compared with 19.6% and 9.7% respectively for 2008 and 2007. This is against the backdrop of 2008 Gross Domestic Product (GDP) growth rate of 7.3%.

Ghanadot