BoG maintains Prime Rate at 18.5% for two consecutive times

BoG maintains Prime Rate at 18.5% for two consecutive times
By Masahudu Ankiilu Kunateh, Ghanadot

Accra, Jury 21, Ghanadot - Despite the global economic uncertainties which are characterizing both the developed and developing countries, the Bank of Ghana (BoG) has decided to maintain the Prime Rate at 18.5% for two consecutive times, starting from 2008 to date.

The Prime Rate is the rate at which the central bank does its overnight lending to the universal banks operating a country.

Speaking to journalists at a press conference in Accra yesterday, the Chairman of the Monetary Policy Committee (MPC), Dr. Paul Acquah, who is also the Governor of the Bank of Ghana, observed that the risks in outlook for disinflation and growth are balanced and therefore committee the rate unchanged.

According to him, headline inflation which had increased from 18.1% in December 2008 to 20.6% in April 2009, seemed to have stabilized around 20% as it declined to 20.1% in May, this year.

The latest data released by the Ghana Statistical Service (GSS) for June 2009 put the headline inflation at 20.7 following the upward revisions in petroleum prices and transportation fares (30 and 17%) hikes respectively in May, 2009.

Food inflation has dropped from 18.5% in March to 15.5% in June, while the non-food inflation increased from 22.0% in March 2009 to 24.7% in June, in part due to the upward revision in fuel prices.

Dr. Acquah added that the bank’s measure of core inflation (defined to exclude energy and utility) increased from 19.3% in March, this year to 21.3% in June.

He was quick to disclose that inflation and exchange rate expectations remained strong, but pointed out that price and exchange rate volatility had reduced somewhat during the second quarter of this year.

Furthermore, the benchmark 91-day Treasury bill rate rose by 35 basis points (bps) in the second quarter of 2009 to 25.84% compared with an increase of 83bps in the first quarter.

Also, the 182-day Treasury rate similarly edged-up by 103bps in the second quarter to 28.82% compared with an increase of 161bps in first quarter.

The 1-year-note rate was unchanged at 21.0% after gaining 100bps in the first quarter, whilst the 2-year fixed rate note however remained at the end 2008 level of 21.0% and the interbank rate increased by 105bps in the second quarter to 22.54% compared with an increase of 210bps in the first quarter of this year.

“The fiscal deficit is being reduced with robust revenue growth and reduced budgetary outlays. This is keeping potential aggregate government spending within established resources envelop”, the Governor hinted.

However, he indicated that funding the underlying borrowing requirements would need to be better balanced with the timely disbursement of budgetary and other external support to ease interest rate pressures on the domestic market.

The trade deficit has narrowed in part due to a slowdown in imports generalized across all imports categories. A sharp decline in the oil import bill has been a major factor.

But the external support both the budget and payments coming from agreements with the International Monetary Fund and the World Bank constitute a major stabilization factor.

Ghanadot