The Monetary Policy Committee of the Bank of Ghana has cut its benchmark interest rate by 100 basis points to 20 per cent from 21 per cent on the back of subdued inflation expectations.
“In sum, the indicators of economic activity and business and consumer confidence remain strong. Inflation expectations remain subdued, with core inflation measures in line to achieving the medium term inflation objective,” Dr Ernest Addison, the Governor of the Bank of Ghana announced at a press conference on Monday.
He said the Committee observed a return to the disinflation path with the Bank’s latest forecast indicating that, the horizon for the attainment of the medium term inflation target of 8 per cent plus or minus 2 percent in 2018 remains unchanged.
Dr Addison said the forecast was, however, contingent on continued improvement in the global economic environment, including oil price changes, stability in the foreign exchange market and achieving the medium-term fiscal targets.
He said the Cedi had remained relatively stable on the foreign exchange market, despite recent movements, which are not a reflection of the underlying fundamentals.
He said the balance of payments position remains robust with a projected trade surplus and reduced current account deficit in 2017 and on track to build up over US$700 million additional reserves this year alone, to bring total gross international reserves to US$7.4 billion.
The initial fragilities in the banking sector have largely been contained and efforts are being made to strengthen the sector, including enhancing supervision and increasing the minimum capital requirements to ensure stronger and well-capitalized banks that can support the government’s transformational agenda.
“Looking forward, the prospects are for strengthening the current macroeconomic performance by consolidating gains made so far in fiscal adjustment and prudent monetary management, underscoring the policy commitment to macro-stability,”
Dr Addison said there were indications that the oil-induced growth is gaining momentum, while the slower non-oil growth remains a concern and may require additional impetus to boost overall growth towards its full potential.
However, recent developments such as the implementation of growth-enhancing government policy initiatives, positive sentiments from businesses and consumers as well as improvement in electricity supply are supportive of non-oil growth, he said.
These notwithstanding, slower private sector credit expansion and tightening credit stance on enterprises could dampen the growth momentum.