Inflation Drop Strengthens Cedi

The drop in inflation for December 2012 has lent support to the Ghana cedi. The local currency experienced some instability in the first half of 2012, depreciating cumulatively by 17 percent up to November 2012.

“It has since stabilized, with some intermittent periods of appreciation,” the Ministry of Finance & Economic Planning (MOFEP) stated in a recent press statement issued in Accra and signed by Abdul Hakim Ahmed, its Media Liaison.

A dollar was buying at GH¢1.9464 and selling at GH¢1.9909 yesterday in Accra.

The ministry indicated that the decline in inflation in three months running up to the end of the year means an increase in real interest rates. That, together with the stability in the cedi, has improved the attractiveness of cedi assets relative to foreign assets.

“The critical part of the macroeconomic equation however is what will happen to inflation going forward. This is important not only for growth but also for the cedi’s outlook as a high rate of inflation often leads to negative real interest rates, which together undermine confidence in the local currency.”

MOFEP was reacting to a finding made by the Ghana Statistical Service on the December 2012 inflation figure of 8.8 percent.

“The December 2012 inflation of 8.8 percent announced not only shows a drop in three consecutive months (October to December) but also marks 31 consecutive months of single digit inflation in the country.”

The ministry further explained that the drop in inflation in three months running (October to December) was mainly on account of the decline in food inflation.

Food inflation, after rising steadily from 4.3 percent in February 2012 to 5.5 percent in July, fell steadily, reaching 3.9 percent in December. On the other hand, non-food inflation increased from 11.2 percent in February to 12.5 percent in August before dropping to 11.6 percent in December.

“The decline in inflation provides concrete evidence of an economy that is growing at a fast rate. Indeed, the declining inflation has created conducive environment for businesses to plan on long term basis, thereby enhancing business investment, which has helped put the economy on a higher growth path,” it further stated.