The Central Bank?s Monetary Policy Committee (MPC) on Wednesday raised the Monetary Policy Rate by 200 basis points to 21 per cent up from the current figure of 19 per cent.

wpid-Dr-Henry-Kofi-Wampah-in-bus-folder.jpgAccording to Dr Henry Kofi A. Wampah, Governor of the Bank of Ghana (BoG), this would ensure that the existing tight monetary policy stance is maintained whilst still operating within the corridor set by the Committee.

Dr Wampah announced this at the Bank?s news conference after the final meeting of the MPC to review developments in the economy and to make resolution on the appropriate positioning of the Bank?s policy rate.

He said the increase in the rate was, however, not expected to affect the lending rates of banks or cost of doing business, explaining that the Committee just set the interest rate at 300 basis points around the monetary policy rate, which implied that the Reverse Repo rate would be maintained at the current 24 per cent and the Repo rate at 18 per cent.

The Governor also said the Committee further took a decision on the reduction in the cash reserve requirement by 100 basis points to 10 per cent and indicated that further reduction may be considered by the BoG when appropriate.

The Committee, he said, is concerned about the outward shift in the medium term inflation path relative to the previous forecast, adding that the latest forecast indicates that inflation would continue to remain outside the target band.

However, he said, inflation rate is expected to ease gradually towards the medium term target band of 8.0 plus or minus two per cent in the first half of 2015.

He said the ease in inflation over the policy horizon is contingent on significant fiscal consolidation and maintenance of the tight monetary stance, in the absence of which the inflation target could take a longer duration in excess of 12 quarters to be achieved, considering the vulnerabilities in the economy.

Dr Wampah explained that in assessing the risks, the Committee took cognisance of the weak global economic outlook in some advanced economies, which continue to weigh down on commodity prices, especially gold and crude oil.

He said the infrastructure for gas production has been completed and is expected to address some of the challenges in the energy sector going forward.

Dr Wampah said the risk to growth in the outlook has waned on the back of strong private sector credit, near commencement of gas production and higher oil output.

However, fiscal pressures continue to pose challenges, with weak revenue performance, rising debt services cost, large public sector wage bill, and outstanding payments owed to statutory funds, constitute upside risks to the expected fiscal consolidation in the medium term, he said.

The Governor said the Committee observed that inspite of the challenges there is continued stability and improved sentiments in foreign exchange markets, which has been supported by earlier policy measures, inflows from the Eurobond, as well as the cocoa pre-export finance facility which has increased liquidity on the markets.

Dr Wampah said it is expected that a successful conclusion of ongoing negotiations with the Fund would provide some balance of payments support and may facilitate donor flows to sustain the stability.



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