The Monetary Policy Committee (MPC) on Friday cut its policy rate by 100 basis points to 15 per cent from 16 per cent, citing the fall in inflation and stabilisation of the cedi against major international currencies as basis for its decision.
Mr Kwesi B. Amissah-Arthur, Governor of the Bank of Ghana, said price developments in the first quarter showed that the process of disinflation was well on track with inflation easing to 13.3 per cent in March 2010.
"The impact of the appreciating currency on import prices and stable monetary aggregate conditions should work together to reinforce the process of disinflation over the year," he said.
"Inflation expectations from the Bank of Ghana's recent surveys appear to be well anchored...The outlook for inflation is for continued decline towards the target range of 7.2 -11.2 per cent for 2010. The forecast suggests that inflation will continue to ease steadily in the second quarter of the year beyond which it will stabilise," Mr Amissah-Arthur who is also the Chairman of the MPC said.
While recent data confirmed recovery of the global economy, the Governor said developments of the real sector of the Ghanaian economy had not been encouraging.
"Retail sales and import VAT collections (which are partial indicators of consumer spending) were below expectation. Also, real credit to the private sector declined during the first two months of the year," he said.
Mr Amissah-Arthur said data from the Bank of Ghana's Composite Index of Economic Activity (CIEA), which gauged the pulse of the economy declined during the first two months of the year, implying a slowdown in the pace of economic activity.
"While consumers remained confident about the prospects of the economy, businesses were less confident," he said and added that the survey showed that high lending rates affected business confidence.
Mr Amissah-Arthur said the response of Commercial Banks to the earlier rate reductions had not been encouraging, emphasising that the "MPC would want to see these rate cuts passed through to lending rates, to reduce the cost of credit and restore economic growth."
The Governor said despite the positive strides in the economy, crude oil prices and postponement of adjustments in administered price (especially with respect to petroleum and electricity tariffs) when passed through could pose a threat to the economy.