The Bank of Ghana on Wednesday said the performance of the domestic economy will continue to be subject to developments in the international markets.

Dr Kofi Wampah, Governor of the Bank of Ghana, said: “In particular, economic recovery in the Euro area as well as favourable commodity price developments in the international markets could impact external sector performance. However, the negative outlook for gold prices would have an adverse impact.”

He said prospects for global economic growth remained steady in spite of changing dynamics from emerging market economies to the advanced economies. Dr Wampah, who was presenting the Bank’s Monetary Policy Committee’s (MPC) Report in Accra, however, said there were significant downside risks in the external environment that could impact on economic developments going forward.

He said on growth prospects, the committee took into cognisance the uptick in the Composite Index of Economic Activity during the third quarter of 2013. He said the continued improvements in the energy sector, the expected increases in oil production and the onset of gas production could support the growth momentum into 2014.

He said, this notwithstanding, the Committee was wary of lingering uncertainties in world commodity markets, and the continued bearish consumer and business expectations as well as tightened credit conditions that could impact on the outlook.

The Governor said the local currency experienced a relatively slower depreciation against the United States Dollar compared to the same period last year, however, there were vulnerabilities in the foreign exchange markets, especially since the last MPC round.

He said additional measures would be introduced to help increase transparency in the markets. He said inflation pressures had increased since the last MPC round as headline inflation drifted outside the target band. This, he attributed mainly to the removal of subsidies on petroleum and increased tariffs on utilities, declaring that there were also demand pressures emanating from budget overruns, and exchange rate pressures.

He said in assessing the outlook for inflation, the Committee noted that the upside risks identified in earlier MPC rounds had actually crystalised in the form of pass-through of petroleum price and electricity tariff adjustments, as well as continued fiscal and exchange rate pressures.

“However, it is expected that the fiscal measures announced in the 2014 budget, if realized, would mitigate some of the pressures. The Committee concluded that headline inflation will breach the 2013 target. Looking ahead, however, our forecasts show that inflation will track back to the target band of 9.5±2 by the end of 2014, barring any new shocks.

“The Committee held the view that the upside risks to inflation, though elevated, are mainly structural and, therefore, may not need to be addressed by a policy rate adjustment at this time,” Dr Wampah said. He said on the other hand there were no significant risks to growth, consequently, the Committee decided to maintain the policy rate at 16.0 per cent.

He said the Committee would continue to monitor developments and take appropriate action if required. He said in addition to the policy rate decision, the Central Bank would introduce a new set of foreign exchange regulations and code of conduct to guide operations in the foreign exchange market.

This, he said, would ensure transparency and streamline activities in the foreign exchange market. He said the Foreign Exchange Act, 2006 (Act 723) would be reviewed for easy application and enforcement. He said the Central Bank would create a uniform trade reporting platform for all banks to ensure transparency in pricing, price discovery, and online reporting.

The Governor said the Bank is in discussions with the Ministry of Finance to allow foreign participation in the one and two-year Government of Ghana securities transactions, adding that this is to ensure competitive pricing in the market.