Dr Henry Wampah, BoG Governor

Global economic group, FocusEconomics has described the Bank of Ghana’s (BoG) increase of the Policy Rate from 25 percent to 26 percent as a surprised move that may alter other macroeconomic indicators negatively.

In its latest report, the group was of the view that though the increase is targeted at controlling inflation, it may cause a surge in cost of lending to the private sector which happens to be the main engine that propels economic growth.

FocusEconomics is a leading provider of economic analysis and forecasts for 127 countries in Africa, Asia, Europe and the America; publishing timely and accurate business intelligence from a variety of industries, including major financial institutions, multinational companies and government agencies.

According to the group, the Central Bank took the decision to hike the rate by 100 basis points due to the inflationary pressures, which reflected the exchange rate volatility and worsening external financial conditions; but took market observers by surprise as a result of its imminent effect on the domestic money market.

“The policy rate now stands at the highest level on record. The decision came as a surprise to the markets as they had expected the Bank to keep the policy rate unchanged at 25.0 percent”, the experts pointed out.

The group further cautioned that challenges in the energy sector, along with government’s decision to embark on a fiscal consolidation may continue to drag on GDP growth from the domestic front.

They, however, maintained that if the energy challenges are turned around in the medium term, it could result in a general improvement in the macroeconomic environment, forcing inflation down as the production of oil and gas peaks by the first quarter of 2016.

Forecasting the inflation by end of 2015, the group expects inflation to average 17.0 percent, which is up 0.4 percentage points from last month’s forecast.

The panel expects the economy to expand 4.8 percent next year, which is down 0.1 percentage points from last month’s estimate.

On the monetary policy rate they were optimistic 2016 will end at 22.29 percent, while inflation averages 14.2 percent in 2016.

Trends in inflation
In October, consumer prices increased 2.70 percent over the previous month, which contrasted the 0.13 percent drop tallied in September and marked the highest reading in nine months.

October’s increase was mainly driven by higher prices for food. Inflation was stable at September’s 17.4 percent in October.

As a result, inflation remains well above the Central Bank’s target of 8.0 percent. However, annual average inflation in October was stable at the previous month’s 17.0 percent.

Real sector growth
According to preliminary estimates released by the Ghana Statistical Service (GSS), the economy has likely shown growth of 4.1 percent in 2015.

The figure marks an improvement over the 4.0 percent increase seen in the previous year with the non-oil GDP growing at 4.2 percent this year, which is an improvement over the 3.9 percent growth tallied in 2014.

In 2015, the industry sector recorded growth of 9.1 percent which marked the fastest increase in three years, significantly better than the 0.8 percent expansion observed in the previous year.

Conversely, the service sector decelerated in 2015 and grew 4.7 percent (2014: +5.6% year-on-year) while the agriculture sector stalled in 2015 as it recorded flat growth over the previous year.

The figure was a deterioration over the 4.6 percent increase observed in the year 2014

The GSS commented that “the 2015 provisional estimates are estimations based on two quarters of 2015 with underlying assumptions.”

So far, the GSS has released data only for the first two quarters of the year.
In Quarter two, GDP expanded 3.9 percent over the same quarter last year and the figure marked a deceleration over the revised 4.3 percent growth observed in the previous quarter (previously reported: +4.1% year-on-year).

The expansion in Quarter two was mainly driven by an increase in industry that expanded an impressive 15.3 percent over the same quarter of last year (Q1: +3.4% year-on-year).

In addition, the services sector accelerated from a 4.1 percent increase in Quarter one to a 5.3 percent rise in Quarter two.

Conversely, agricultural production swung from a 3.6 percent expansion in the first quarter to a 0.1 percent contraction in the second quarter, thus recording the first decrease in four quarters.


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