Ghana's central bank lowered its monetary policy rate by another 100 basis points to 20.0 percent, saying economic activity remains strong, inflation expectations subdued and the exchange rate of the cedi stable but "slower private sector credit expansion and tightening credit stance on enterprises could dampen the growth momentum."
The Bank of Ghana (BOG) has now cut its key rate four times this year by a total of 550 basis points, most recently in July, and by 600 points since beginning an easing cycle in November 2016.
Ghana's inflation rate has been trending lower this year and fell to 11.6 percent in October, the slowest since August 2013, and the BOG said it latest forecast continues to indicate inflation will reach the target range of 8.0 percent, plus/minus 2 percentage points, in 2018.
This forecast, however, is contingent on continued improvement in the global economy, including oil prices, a stable exchange rate and achieving medium-term fiscal targets.
Total debt by Ghana's public sector rose slightly to 68.6 percent of Gross Domestic Product in September from 68.3 percent in August, with domestic debt declining to 63.3 billion cedi while external debt rose to 75.5 billion.
Ghana's balance of payments position was seen as robust by BOG, with a trade projected to be in a surplus this year, a narrower current account deficit and gross international reserves on track to rise by over US$700 million to $7.4 billion.
In the year to October Ghana's trade account was in a surplus of US$646.1 million compared with a deficit of $2.0 billion in the previous year, based on higher exports of gold, cocoa and oil
"In sum, the indicators of economic activity and business and consumer confidence remain strong," the BOG said, adding fragilities in the banking sector have been largely contained and the prospects are for a strengthened macroeconomic performance by consolidating gains so far in fiscal adjustment and prudent monetary management.
Ghana's GDP grew by an annual rate of 9 percent in the second quarter, up from 6.6 percent in the first quarter and is projected to end the year with growth of 7.9 percent, driven by the oil sector. In 2016 the economy grew by an estimated 3.5 percent.
The latest confidence surveys also point to improved business and consumer confidence, reflecting favorable prospects for industry, household's financial situation and an improvement in the general economic environment, BOG said.
Ghana's cedi was trading at 4.62 to the dollar today, down 7.4 percent this year and down by 17.3 percent since the start of 2016.
The Bank of Ghana issued the following statement:
"1. Ladies and Gentlemen, welcome to the press briefing of the 79th regular
meeting of the Monetary Policy Committee (MPC), the last for the year.
We present highlights of economic developments that have shaped the
Committee’s view of the outlook and informed its decision on the stance
of monetary policy going forward.
2. Global growth has strengthened further since the last MPC meeting,
sustained by strong growth in demand and recovery in investments and
trade. The recovery process has also expanded beyond advanced
economies to include large emerging market economies. Growth in subSaharan
Africa is also slowly rebounding. The improved global growth
conditions notwithstanding, inflation remains subdued. Although the US
Fed has started trimming its balance sheet with the possibility of rate
increases in December and in 2018, monetary policy in other advanced
countries remains broadly accommodative. These favourable external conditions could impact positively on the domestic economy through the
financing and trade channels.
3. Price developments during the first 10 months of the year continued to
show signs of dampening inflation expectations. Headline inflation
measured by the consumer price index was 11.6 percent for October
2017, a reflection of a steady decline in inflation since the beginning of
the year with the exception of April and August, when inflation ticked
up slightly. All the Bank’s indices of core inflation continued to decline
in October, pointing to a downward trend in underlying inflation, well
within or close to the end year inflation target.
4. Prices of Ghana’s major export commodities continued to firm up in the
international commodities market. In particular, crude oil prices have
strengthened in recent weeks reflecting geopolitical tensions, supply
constraints and strong demand. Also, the price of gold moderated
slightly, though still high, as the global economic recovery gained
traction. However, cocoa prices remain depressed by excess supply due
to favourable weather patterns across the West African sub-region.
5. Developments in the real sector show an expanding economy.
Provisional real GDP estimates from the Ghana Statistical Service
showed that the economy grew by 6.6 percent and 9.0 percent in the first and second quarters respectively, and is projected to end the year at 7.9
percent driven mainly by the oil sector. Non-oil GDP growth was 3.9
percent in the first quarter and 4.0 percent in the second quarter.
Meanwhile, the Bank’s updated Composite Index of Economic Activity
recorded an annual growth of 3.2 percent in September 2017, compared
to 3.1 percent in the same period last year.
6. The Bank’s latest confidence surveys conducted in October pointed to
improved business and consumer confidence in the economy. These
reflect the favourable prospects for industry, household’s financial
situation and improvement in the general economic environment.
7. Developments in the monetary aggregates showed increased total
liquidity in the economy, mainly driven by net foreign assets of the Bank
of Ghana. Broad money supply (M2+) grew by 22.6 percent on a yearon-year
basis in October 2017, relative to 19.8 percent annual growth a
year ago. Deposit Money Bank’s credit to the private sector continued to
expand but at a slower pace, recording an annual growth of 9.4 percent
as against a growth of 12.1 percent over the same comparative period.
8. The moderated pace of credit growth is evidenced by some tightening of
credit stance within the banking system. In the latest credit conditions
survey conducted in October, deposit money banks indicated a net tightening of credit stance on loans to enterprises, as banks clean up their
loan books. However, credit stance for loans to households for consumer
credit and mortgages eased.
9. The banking sector remains liquid and solvent although non-performing
loan ratio remains high. Total asset base of banks increased to GH¢88.9
billion in October 2017, representing an annual growth of 20.5 percent
compared to 23.7 percent same period last year. The growth in assets
was mainly funded by deposits which went up by 18.2 percent on a yearon-year
basis.
10. The quality of banks’ loan portfolio has improved marginally since the
last MPC meeting. The Non-Performing Loans (NPLs) ratio declined
from 21.9 percent in August to 21.6 percent at the end of October.
Similarly, NPL ratio net of provisions declined from 11.3 percent to 10.5
percent. The industry’s Capital Adequacy Ratio (CAR) averaged 15.0
percent at the end of September 2017, significantly above the 10.0
percent prudential requirements.
11. Provisional data on fiscal operations as reported in the 2018 Budget
indicated an overall deficit of 4.6 percent of GDP in the year to
September 2017, against the target of 4.8 percent. Total revenue and
grants was 14.1 percent of GDP, below the target of 15.5 percent while
total expenditures, including arrears clearance, was 18.0 percent of GDP below the budgeted estimate of 19.2 percent. Financing of the deficit
was from domestic instruments.
12. Total public debt stood at GH¢138.9 billion (68.6% of GDP) at the end
of September 2017 from GH¢138.1 billion (68.3% of GDP) in August
2017. Of the total, domestic debt declined to GH¢63.3 billion while
external debt went up to GH¢75.5 billion. Of the domestic debt, the
share of the 91-day and 182-day treasury bills declined from 16.6
percent in December 2016 to 8.4 percent in October 2017. On the other
hand, the share of long dated instruments (7 - 15 years) went up from 0.8
percent in December 2016 to 5.1 percent at the end of October 2017.
13. The strong shift of market preferences for long dated securities became
more pronounced this year consistent with the re-profiling of
government debt instrument, and was underpinned by a steady decline
and realignment of interest rates as well as a downward shift in the yield
curve in line with generally declining inflation expectations.
14. The external payments position shows resilience and improvements in
the trade and the current accounts balances. The first three quarters of
2017 recorded a trade surplus which translated into a lower current
account deficit of US$1.1 billion (2.4% of GDP) compared with a deficit
of US$2.1 billion (4.9% of GDP) in the previous year. The capital and financial account also recorded positive net inflows, estimated at US$1.7
billion (3.7% of GDP) which was sufficient to offset the current account
deficit. As a result, the overall balance of payments for the first nine
months, recorded a surplus of US$379.0 million (0.8% of GDP) and will
increase further in the fourth quarter.
15.Latest estimates of trade data suggest that in the year to October 2017,
the trade account has recorded a surplus of US$646.1million (1.4% of
GDP), compared to a deficit of US$2.0 billion (4.7% of GDP) over the
same period in the previous year. The significant improvements
recorded in the trade account is attributed to higher export receipts from
gold, cocoa and oil due to increased production, coupled with lower
imports.
16. Foreign exchange market conditions have remained broadly stable
supported by improved liquidity conditions, despite increased demand
pressures observed over the past two weeks. In the year to 23rd
November 2017, the Ghana cedi has cumulatively depreciated by 4.6
percent against the US dollar, unchanged from the pace of depreciation
recorded in the corresponding period of 2016.
17. Gross International Reserves (GIR) of Bank of Ghana increased to
US$7.4 billion (4.1 months of import cover) as at 24
th November 2017 from a stock position of US$6.2 billion (3.5 months of import cover) in
December 2016.
Summary and Outlook
18. In sum, the indicators of economic activity and business and consumer
confidence remain strong. Inflation expectations remain subdued, with
core inflation measures in line to achieving the medium term inflation
objective. And, the cedi has remained relatively stable on the foreign
exchange market, despite recent movements which are not a reflection of
the underlying fundamentals.
19. The balance payments position remains robust with a projected trade
surplus and reduced current account deficit in 2017 and on track to build
up over US$700 million additional reserves this year alone, to bring total
gross international reserves to US$7.4 billion.
20. The initial fragilities in the banking sector have largely been contained
and efforts are being made to strengthen the sector, including enhancing
supervision and increasing the minimum capital requirements to ensure
stronger and well-capitalized banks that can support the government’s
transformational agenda.
21.Looking forward, the prospects are for strengthening the current
macroeconomic performance by consolidating gains made so far in
fiscal adjustment and prudent monetary management, underscoring the
policy commitment to macro-stability.
22.The Committee observed a return to the disinflation path with the
Bank’s latest forecast indicating that the horizon for the attainment of
the medium term inflation target of 8±2 percent in 2018 remains
unchanged. This forecast is however contingent on continued
improvement in the global economic environment including oil price
changes, stability in the foreign exchange market and achieving the
medium-term fiscal targets.
23. There are indications that the oil-induced growth is gaining momentum,
while the slower non-oil growth remains a concern and may require
additional impetus to boost overall growth towards its full potential.
However, recent developments such as the implementation of growth enhancing
government policy initiatives, positive sentiments from
businesses and consumers as well as improvement in electricity supply
are supportive of non-oil growth. These notwithstanding, slower private
sector credit expansion and tightening credit stance on enterprises could
dampen the growth momentum.
24. Under the circumstances, the Committee decided to reduce the policy
rate by 100 basis points to 20 percent. "
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