The Monetary Policy Committee (MPC) on Friday
maintained the policy rate at 13.5 per cent citing a projected inflation outlook below nine per cent for 2011 coupled with expected positive economic recovery activity.
Mr Kwesi B. Amissah-Arthur, Governor of the Bank of Ghana and Chairman of the MPC, announced the Committee's decision at a press conference in
Accra.
The current policy rate, which was fixed in July this year, is expected to influence interest charged by banks on loans granted to customers.
The press conference, which is the last to be organised for 2010, was a follow-up to the 42nd meeting of the MPC.
Mr Amissah-Arthur said the committee identified potential sources of
risk in the outlook for the medium term inflation profile, including the nature and pace of growth of the budget deficit.
On the budget deficit, he said the MPC identified potential sources of risk to the 2011 budget as management and settlement of payment of arrears, the pace of settlement of wage arrears and the inflexibility of the expenditure programme by the continued earmarking of revenues.
Mr Amissah-Arthur said though the MPC recognised that expected crude oil price increases could impact adversely on domestic fuel pump prices, higher crude oil prices would have a favourable impact on the Balance of Payments and on government's fiscal operations through export earnings.
"The net impact on the economy of future crude oil price increases will therefore be determined by the extent to which the negative and positive effects balance out."
On the projected build-up in foreign exchange reserves arising out of inflows of private capital in the money market, Mr Amissah-Arthur said further liquidity would be injected into the economy by the extent of spending of petroleum revenues with a consequential liquidity management challenges for the BOG.
He observed that the macroeconomic policy mix over the past years had provided an anchor for inflation though conceding that the process of disinflation had slowed down considerably in the last few months.
"Despite the slowdown, the Committee expects that 2010 will end with an inflation rate close to the central target of 9.5 per cent", he said,
projecting that inflation was expected to be below nine per cent by 2011.
On cost of credit, Mr Amissah-Arthur observed that the banks had begun a process of easing credit conditions.
He admitted though that credit to the private sector remained weak stressing that banks needed to further ease credit conditions.
Mr Amissah-Arthur said the overall balance of payments had improved significantly in the course of the year and that continued improvement was expected to give a boost to reserve accumulation and provide stability in the foreign exchange market.
Speaking on the banking sector developments, he said a total asset of the industry at the end of September 2010 was GH15.6 billion, representing a growth of 29.1 per cent over the previous year.
He attributed the growth mainly to increase in deposits.
Mr Amissah-Arthur said BOG Credit Conditions Survey conducted in November 2010 showed some improvement in access to credit by small and
medium-scale enterprises for the first time since the beginning of 2010.
"This development helped to improve overall credit conditions in the last quarter of this year. The access of large enterprises and households to consumer credit also continued to improve."
On government's fiscal operations, Mr Amissah-Arthur said the pace of spending increased significantly at the end of November 2010, reaching 32.8 per cent in year-on-year terms compared with an annual decline of about five per cent for the same period in 2009.
"These developments resulted in a fiscal deficit, on a narrow coverage basis, of 6.7 per cent compared to a deficit of 4.7 per cent, a year ago."
Touching on global economic developments, Mr Amissah-Arthur said the MPC observed that commodity prices including crude oil had been rising since October 2010.
"There has also been a re-alignment of major currencies in the international market with the United States dollar depreciating against the
other major international currencies following the start of the second phase of Quantitative Easing by the Federal Reserve Board", he said.