Ghana clings to 26 pct policy rate on balanced projections

The Monetary Policy Committee (MPC) of the Bank of Ghana, the central bank, has decided to maintain its benchmark policy rate at 26 percent.

"In assessing the current economic conditions, the committee views the risks to inflation and growth as balanced and therefore decided to maintain the monetary policy rate at 26 percent," Bank of Ghana Governor, Abdul Nasiru Isahaku, told the media on Monday.

This is the second time the central bank has decided to hold the policy rate after raising it to the current level in November 2015.

The Bank of Ghana raised the rate three times last year as inflation risk kept rising above the projected path.

Isahaku said the recent stability in the local currency, cedi, had continued on tight policy stance and improved inflows.

The cedi depreciated by 0.3 percent from January to May 12, 2016, compared with a depreciation of 17.2 percent in the same period last year against the U.S. dollar.

"In the outlook, the tight policy stance is needed to deepen the gains made on the foreign exchange market and strengthen the disinflation process over the forecast horizon," Isahaku said.

After rising sharply to 19.2 percent in March, headline inflation declined to 18.7 percent recently following a slowdown in non-food inflation.

"The sharp increase in March was largely influenced by the lagged effect of the upward adjustment in transport costs. In April, however, the monthly inflation rates also slowed, supported by stability in the exchange rate," Isahaku said.

The Bank of Ghana has a primary mandate to ensure price stability and economic growth in the country, he said.

The MPC's latest forecast reiterates that inflation will gradually decline from the second-quarter towards the target band by mid-2017.

Isahaku was hopeful that the tight policy stance and stability on the foreign exchange market alongside easing inflation expectations and generally improving fundamentals would in the near-term provide additional momentum to the disinflation process over the forecast horizon.

The governor however pointed out that there were still some risks in the inflation outlook, including the unanticipated upward adjustments in utilities and petroleum product prices as well as possible second round effects from such adjustments on prices.

He said the slow but persistent pickup in food inflation since August 2014 is also a source of concern for inflation.

"The near term forecast for inflation is elevated, especially on the back of the recent turn in oil prices and this supports at the minimum a steady rate decision," said Sampson Akligoh, a managing director with Investcorp, a investment banking institution in the capital Accra. Endit