The Bank of Ghana (BoG) on Thursday increased the monetary policy rate by 200 basis points to 18 per cent. Dr Kofi Wampah, Governor of BoG, said the increment was necessitated by the recent global and domestic developments and the Bankï¿½s assess risks to the outlook.
Dr Wampah was speaking at a press briefing to address the issue of the cedi depreciating against the US dollar in Accra.
He said the latest International Monetary Fund World Economic Outlook indicates that global growth was expected to increase in 2014 to an average of 3.7 per cent up from 3per cent in 2013.
He said, however, the new developments in emerging markets have raised concerns about contagion risks which could impact on commodity markets as well as prospects for growth.
On the domestic economic developments, he said the economy continued to experience fiscal pressure, exchange rate depreciation and cost-push effects from higher petroleum and utility prices.
He said the fiscal imbalances and external pressures resulted in a current account deficit of 12.3 per cent of gross domestic product up from 12.1 per cent in 2012. Dr Wampah said these developments in the fiscal and external sector together with the global pressure resulted in a depreciation of the cedi by 14.6 per cent against the US dollar last year compared to 17.5 per cent in 2012.
He said to support the monetary policy decision; the Bank has issued a new set of foreign exchange regulations and code of conduct to guide operations in the foreign exchange market. ï¿½This is to ensure transparency. Streamline activity and reduce leakages in the foreign exchange market, address anti-money laundering issues and promote the use of the Cedis as the sole legal tender,ï¿½ he added.
On a medium to long term measures, the Governor said government must seek to broaden the tax base further, diversify and broaden the export base, reduce import especially of consumption goods that have local substitutes and intensify efforts to block foreign exchange leakages.
He said there was the need to consider re-negotiating existing stability agreements with exporters to ensure that all retention accounts were maintained with domestic banks.
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