Dr. Ernest Addison
Lending rates of commercial banks are expected to go down after the Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) reduced its policy rate from 23.5 percent to 22.5 percent.
The committee said that the downside risks to growth outweigh the upside risks to inflation in the outlook, and therefore decided to reduce the policy rate by 100 basis points.
The policy rate indicate the rate at which commercial banks can borrow from the Central Bank.
Dr. Ernest Addison, the Governor of the Bank of Ghana (BoG), who was addressing his maiden MPC meeting yesterday, said the pace of economic activity has picked up, driven mainly by growth in private sector credit, improved business sentiments and easing credit stance.
Furthermore, he said increased oil production from both Jubilee and TEN fields and further activity in the Sankofa Gyenyame Ntomme (SGN) fields by the third quarter should give impetus to overall growth prospects.
“In sum, there is evidence to suggest that the economic imbalances that existed at the end of 2016 are giving way to stronger fundamentals with economic activity expected to pick up strongly in the period ahead, albeit below potential,” Dr. Addison said.
Fiscal Consolidation
He said the 2017 budget indicates a return to the path of fiscal consolidation, adding that the reduction in the fiscal deficit for the year is expected to foster more stable macroeconomic conditions.
The governor said rigorous and steadfast implementation of the budget would therefore be critical to the outlook.
Touching on inflation, he said the Committee noted that headline inflation, and inflation expectations have broadly trended downwards, explaining that the disinflation process has been supported by tight policy stance and exchange rate stability.
“With a stable outlook for exchange rate movements and return to the path of fiscal consolidation, headline inflation is expected to trend towards the medium-term target in 2018, barring any unanticipated shocks,” he said.
Fiscal Operations
Dr. Addison said provisional data on government fiscal operations in the first quarter of 2017 indicated a cash deficit of 1.5 percent of GDP, consistent with the set target for the period.
This, he said, was on the back of improved expenditure alignment to revenues, stating that total revenue and grants fell short of target by 14.3 percent, while expenditures remained broadly contained at 11.5 percent and below programmed target.
Dr. Addison said total revenue and grants for January to March 2017 amounted to 4.1 percent of GDP as against a budget estimate of 4.8 percent.
“Total expenditures, including arrears clearance, was provisionally reported at 5.6 percent of GDP compared with a target of 6.3 percent.
“Financing for the deficit, equivalent to 1.5 percent of GDP, was mostly from domestic sources, including drawing down on government deposits with the Bank of Ghana,” he said.
By Cephas Larbi