BOG Holds Benchmark Interest Rate at 18.5%

The Monetary Policy Committee (MPC) on Wednesday held the prime rate at 18.5 per cent, citing signs of improvement and stablisation in the economy.

Dr. Paul Acquah, Chairman of the MPC, told a press conference after a meeting of the Committee that the decision to maintain the rate followed signs of stabilization in prices and in the exchange market.

"We have begun to see some signs of stabilization in the third quarter of the year, an indication that the effects of both monetary and fiscal policies are beginning to take hold," he said.

Besides, inflation expectations are beginning to turn around. Consumer price inflation as well as core inflation remains around 20 per cent.

"However, recent monthly increases have been modest and there are signs of reduced volatility in prices and in the exchange rate of the cedi against the major currencies," he said. The prime rate is the rate at which the central bank lends money to the commercial banks.

Dr. Acquah said the latest surveys of the Bank of Ghana showed more positive assessment of the general macroeconomic outlook and recovery in both business and consumer confidence.

The country's external payments position has benefited from the continuing terms of trade gains due to a reduction in energy bill mostly as a result of increased generation of electricity from hydro sources, along with lower oil prices.

Dr Acquah said increases in oil prices as a result of recovery of global demand from the financial and economic crisis still posed a major threat to the economy.

Also, while fiscal consolidation is taking place, shortfalls in revenue and donor disbursements and payments of domestic arrears have meant that some payments in the pipeline would have to be settled and that could add some stimulus to the economy.

However, he said, the risks to inflation and growth appeared well balanced with policies working to strengthen the disinflation process that had begun and keep it on the path towards the inflation target of 14.5 per cent for the year.