Policy Rate Maintained At 12.5 Percent

The Monetary Policy Committee (MPC) of the Bank of Ghana (BOG) has maintained the Monetary Policy Rate at 12.5 per cent.

The decision to maintain the policy rate was arrived at after a two-day meeting by the Monetary Policy Committee to review the health of the economy.

The policy rate, the rate at which the Central Bank does its overnight lending to the universal banks in the country was last cut by 50 bases point in July from 13 percent to 12.5 percent.

Governor of the Bank of Ghana Kwesi Amissah-Arthur in a statement at a press conference explained that �Inflation expectations are well anchored and have stabilized along the single digit path, supported by favorable food prices".

He added that "the rate had continued to decline and the 9% target for the year is achievable.

"Despite the improved economic fundamentals, upside risks of inflation are emerging in the form of adjustment in the utility tariffs wage pressures and other all induced and external pressure that may result in the overheating of the economy.

"In the light of this assessment of the risks, the MPC has decided to maintain the policy rate at 12.5%�.

According to the MPC, estimates of the real composite index of economic activity (CIEA) for the first half of 2011 show that the level of economic activity increased on a year on year basis by 20.5 percent compared to 19.4 percent in may 2011.

Components of the CIEA like port activity, SSNIT, bank credit, VAT contributions among others contributed to the increase in economic growth.

Consumer survey also showed a generally positive assessment of macro economic conditions and prospects. Consumer confidence index increased to 102.1 in August from 99.5 in June 2011.

The banking sector continues to be sound according to the central bank as most banks are now well capitalized and are registering an improvement in the Non Performing Loans (NPL) ratio. The NPL ratio declined from 17.2 percent in May to 16.4 percent at the end of June 2011.

Also stress tests conducted by BOG shows the sector was resilient to changes in interest rates exchange rate and credit facility while liquidity levels were sufficient to cushion the system against extreme liquidity risks.

Meanwhile, contrary to earlier assertions by business owners, demand for long term loans by them had increased. Government fiscal operations appear not to be recording much positive results.

Total revenue and grants realized in the first seven months of 2011 amounted to 5.8 billion Ghana cedis compared to a target of 5.7 billion cedis, international trade taxes exceeded the target by 7.7 percent while income and property taxes amounted to 1.9 billion cedis falling short of the expected target by 12.4 percent.

Indirect domestic taxes also fell below its target by 5.9 percent. Domestic debt shot up from 8.3 billion cedis in December 2010 to 10.9 billion in July 2011, total public debt at the end of July 2011 was 21.6 billion cedis equivalent to 40.5 percent of the country�s GDP this is up 38.1 percent at the end of December 2010.

Meanwhile, the central bank�s gross international reserve GIR was 4.5 billion US dollars as at August 2011 as compared to that of December 2010 which was 4.7 billion US dollars.

Source: Cfm