Accra, March 27, GNA – The Monetary Policy Committee of the Bank of Ghana has raised the lending rate by 150 basis points to 29.5 per cent from 28 per cent to tame inflation.
Dr Ernest Addison, the Governor of the Bank of Ghana, said while headline inflation had declined marginally for two consecutive months, it continued to remain relatively high compared to the medium-term target of 8 plus 2 or minus 2 per cent.
“To place the economy firmly on the path of stability and reinforce the pace of disinflation, it is important that the monetary policy stance be tuned further to re-anchor inflation expectations towards the medium-term target.
Given these considerations, the MPC decided to increase the Monetary Policy Rate by 150 basis points to 29.5 per cent,” he told a press conference in Accra.
The Committee deliberated on recent macroeconomic developments and assessed the current state of the economy and risks to the inflation and growth outlook.
Dr Addison said in the real sector, the Bank’s high-frequency indicators pointed to further moderation in economic activity in line with the challenging macroeconomic environment.
He said the January 2023 update of the Bank’s Composite Index of Economic Activity (CIEA) indicated a contraction in economic activity by 7.6 per cent, compared to a growth rate of 4.2 per cent in the same period of 2022, weighed down by port activity, cement sales, imports, and credit to the private sector.
However, he said, both business and consumer sentiments continued to show further improvement in February 2023. Consumer confidence improved due to easing inflationary pressures, which led to some optimism about future economic conditions.
Also, business sentiments improved as companies met short-term targets amid positive company and industry prospects.
Annual nominal growth in private sector credit was up by 29.5 per cent in February 2023, compared with 17.1 per cent in the corresponding period of 2022.
However, in real terms, private sector credit contracted by 15.3 per cent compared with 1.2 per cent contraction, over the same period a year before, due to the high level of inflation.
Dr Addison said the banking sector broadly reflected the challenging operating the environment in 2022 on account of macroeconomic conditions, and the recent implementation of the Domestic Debt Exchange Programme (DDEP).
“Our preliminary assessment of the impact of the DDEP on the banking sector, based on December 2022 data, indicates significant losses on account of impairment of banks’ holdings in GoG bonds,” he said.
However, the impact of the DDEP as currently assessed is moderated by the timely introduction of regulatory reliefs by the Bank of Ghana to support the banking sector, similar to the reliefs provided to banks at the onset of the Covid-19 pandemic.
Provisional data on budget execution for 2022 indicated a higher overall broad fiscal deficit (cash basis) of GH¢49.7 billion (8.1 per cent of GDP), against the revised mid-year 2022 target of GH¢38.9 billion (6.3 per cent of GDP).
Despite the mixed performance in the prices of Ghana’s major commodities, the trade balance improved in the first two months of 2023, mainly on the back of higher export volumes.
In the first two months, total exports expanded by 11.2 per cent year-on-year to US$2.8 billion, driven mainly by higher gold, cocoa, and other export receipts.
The value of gold exports amounted to US$1.1 billion, representing an increase of 35.8 per cent, driven mainly by a 38.5 per cent increase in export volumes to 619,373 ounces.
Cocoa beans and product exports increased by 15.5 per cent and 3.3 per cent to US$387.6 million and US$159.3 million respectively, mainly on the back of higher production volumes.
Earnings from ‘other’ exports, including non-traditional exports, were estimated at US$538.2 million, representing a 10.8 per cent year-on-year growth.
In contrast, exports of crude oil declined by 18.3 per cent to US$562.6 million, largely due to lower export volumes.
The total import bill, on the other hand, declined by 11.8 per cent year-on-year to US$2.0 billion, driven by compression in non-oil imports.
Non-oil imports also dipped by 17.6 per cent to US$1.4 billion, while oil and gas imports increased marginally by 4.8 per cent to US$622.9 million. The combination of export growth and lower imports resulted in a trade surplus of US$752.8 million for the first two months of 2023, higher than the trade surplus of US$205.8 million recorded for the same period in 2022.
For the year 2022, the overall balance of payments recorded a deficit of US$3.6 billion. The capital and financial account recorded a net outflow of US$2.1 billion (2.9 per cent of GDP), mainly on account of lower FDI flows and significant portfolio reversals.
Gross International Reserves declined to US$5.9 billion at the end of February 2023, providing cover for 2.8 months of imports of goods and services.
However, Net International Reserves improved to US$2.6 billion, reflecting a slight decline in encumbered funds.
In the year to March 22, 2023, the Ghana cedi cumulatively depreciated by 22.1 per cent, 23.5 per cent, and 23.1 per cent against the US dollar, the Pound, and Euro, respectively.
GNA