[ 2012-04-14 ]

Monetary Policy Committee raises policy rate to 14.5 per cent
Accra, April 13, GNA - The Monetary Policy
Committee (MPC) on Friday announced a one
percentage point increase in the policy rate to
14.5 per cent from 13.5 per cent, citing the
upside risks to inflation.

Mr Kwesi Amissah-Arthur, Governor of Bank of Ghana
(BOG), said at a press conference in Accra that
although growth potentials remained strong,
prevailing exchange rate developments could act to
offset the gains made in macroeconomic stability.

“Given the current macroeconomic conditions the
assessment of the Committee over the forecast
horizon shows an elevated inflation profile,” he
said, necessitating the need to increase the
policy rate.

“The Committee was of the view that the upside
risks to inflation outweigh the downside risks to
growth and therefore decided to increase the
policy rate by 100 basis points to 14.5 per cent,”
Mr Amissah-Arthur said.

He said the BOG was also reducing the single
currency Net Open Position (NOP) of banks from 15
per cent to 10 per cent and the aggregate NOP from
30 per cent to 20 per cent in a move intended to
improve the supply of foreign exchange by banks to
the market.

He said recent developments in the exchange rate
and its possible impact on inflation as well as
implication for the country's international
reserves called for decisive policy measures to
stem the trend.

The cedi continued to weaken against the dollar in
the foreign exchange market as a result of high
demand, leading to a depreciation of 8.3 per cent
against the dollar in the first quarter of the
year compared to two per cent in the same period
of 2011.

Mr Amissah-Arthur said the cedi had fallen due to
a number of factors, including growing demand for
foreign exchange to support increased economic
activity due to the expansion of the economy, the
changing nature of trade pattern, which was
shifting towards Asia, especially China in which
transactions were mostly conducted on cash basis
as well as speculative activity by foreign
exchange traders trying to profit from the
depreciation of the currency.

The Governor said policy intervention would
therefore aim at minimising the risks to inflation
and growth by stemming the depreciation of the
cedi in order to build reserves to levels that
would be able to withstand external shocks.

“In doing this, we plan mainly to use the market
mechanism to reverse the liquidity overhang. But
we will also strengthen controls to reverse the
process of dollarisation in the economy,” he said,
adding that the Bank was closely monitoring
developments and would not hesitate to take
additional measures if deemed necessary.

Source - GNA

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