BoG maintains prime rate at 18.5% for three consecutive times

BoG maintains prime rate at 18.5% for three consecutive times
By Masahudu Ankiilu Kunateh, Ghanadot

Accra, Sept 24, Ghanadot - The Bank of Ghana (BoG) has defied the call to reduce the prime rate and maintained it at the 18.5% for three consecutive times.

The bank argued the risks to inflation and growth appeared well balance with policies working to strengthening the disinflation process that has begun and keep it on the path towards the inflation target of 14.5% for the year.

Speaking to journalists in Accra, the outgoing Governor of the Bank of Ghana, Dr. Paul Acquah added that headline inflation which was 20.7% in June 2009 declined to 20.5% in July 2009 and then further to 19.7% by the end of August, this year.

The decline in inflation was from both food and non-food sources with the non-food exerting a stronger downwards force than food inflation, an indication that the impact of the 30% rise in petroleum prices in May has fully been contained.

The monthly price increases were the lowest of non-food inflation in recent years, and the decline in the food index was also among the steepest.

Dr. Acquah, who is also the outgoing Chairman of the Monetary Policy Committee (MPC) of the bank revealed the bank’s measure of core inflation (defined to exclude energy and utility) began to decline in August by 0.8 percentage points after increasing steadily in the year 2009.

Furthermore, provisional data available at the end of July 2009 show a slowdown in the pace of expansion of the key monetary aggregates. With Broad money (M2+) grew by 34.95% principally due to an increase in foreign currency deposits. This represented a slowdown from 39.7% for July 2008.

To add up, foreign currency deposits grew by 70.8% in year on year terms at the end of July 2009, but up from 49.8% recorded for July 2008. Also, foreign currency deposits which amounted to GH¢1,816.8million in December 2008 increased to GH¢2,490.2million in July, this year, compared with GH¢1,458.1million for July, last year.

In the quarter under review, interest rates remained broadly stable. With the benchmark 91-day Treasury bill rate firmed up marginally by 5bps to 28.85% at the end of August compared with an increase of 35bps in June.

In the case of the 182 day treasury rate similarly edged-up by 3bps over the same period to 28.85% compared with an increase of 103bps in June.

The 1-year-note rate was unchanged at 21.05 in August 2009 after gaining 100bps in March. The 2-year fixed rate note however moved to 25.50% in August from 21.0% in June 2009.

Whilst, the interbank rate edged up by 18pbs to 22.72% between June and August 2009 compared with an increase of 105bps in June, this year.

However, average base rate quotations of the banks were revised marginally upward by 37bps between June and August to the range 25.75%-32.0%, compared with 160bps increase in the second quarter and 170bps in the first quarter of this year.

While, average lending rates remained unchanged at the second quarter level of 32.75% and were in the range of 25.75 to 40.0%.

On the whole, the volatility in the exchange market eased in the third quarter. Developments in the exchange rates of the Cedi against the three core currencies-the US Dollar, the Pound Sterling and the Euro showed that between January and August 2009, the cedi depreciated, cumulatively by 16.7% against the dollar, 24.7% against the Pound Sterling and 17.5% against the Euro.

Ghanadot