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Business News of Thursday, 29 October 2015

Source: The Finder

More economic squeeze ahead

Dr Henry Kofi Wampah - BoG Governor Dr Henry Kofi Wampah - BoG Governor

THE Bank of Ghana (BoG) is warning that it will tighten its monetary policy further by raising the policy rate if risks to inflation persist.

This indicates that loans will remain expensive, private sector will have limited access to credit, taxes will go up while living conditions worsen.

“In the unlikely situation that the exchange rate, fiscal policy, growth conditions and one-off shocks in the prices of petroleum and utilities deviate significantly from the baseline assumptions, further monetary policy action will be required to prevent further adverse effects on inflation expectations and medium-term inflation outlook”, the Central Bank revealed from its latest ‘Inflation Analysis and Outlook Report’.

It explained that the current central forecast for inflation is based on the assumptions of exchange rate stabilization at current levels, a tight fiscal discipline to attain all the fiscal targets as well as no unanticipated hikes on administered prices.

These conditions it emphasized together with maintaining the current tight monetary policy stance is expected to bring inflation back within the target corridor of 12 percent by the end of 2016, barring further risks.

The report explained further that growth conditions are expected to remain subdued in the year due to the ongoing fiscal consolidation, tight monetary policy stance and unfavorable developments in the global economy.

Real GDP growth is expected to range between 3-4 percent in 2015 but rebound in 2016 to 6.4 percent.

It said “the pace of fiscal consolidation has progressed in the first seven months of the year as revenues exceeded targets while expenditures remain contained. But, some pressure points are emerging and these include uncertainty in the foreign exchange market, revenue implications of the energy challenges, tightening global financial conditions, pressures from the labour front and rising debt levels.”

In spite of these emerging risks, the Central Bank’s analysis however said “the fiscal consolidation process needs to continue over the medium term to complement the tight monetary policy stance for the attainment of the medium-term inflation target.”

The BoG’s inflation target of 12 percent this year looks unlikely to happen following recent developments in the economy.

Already, some analysts and market watchers are projecting an almost 20 percent inflation rate by the end of 2015 if current price levels are to go by coupled with expected increases in utility tariffs.

Historically, inflation goes up during the months of October, November and December where the Christmas festivity brings in lots of imports and trading activities.

Year-on-year inflation hit 17.4 percent in September, 2015 after recording a 17.3 percent rate in August.