Bank Of Ghana Moves To stabilize Cedi

The Monetary Policy Committee (MPC) of the Bank of Ghana has 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 and the depreciation of the cedi.

Mr. Kwesi Amissah-Arthur, Governor of Bank of Ghana, speaking at a press conference in Accra on Friday, said although growth potentials remained strong, prevailing exchange rate developments could act to offset the gains made in macro-economic stability.

“Given the current macro-economic conditions, the assessment of the committee over the forecast horizons shows an elevated inflation profile, “he said.

The committee, he said was of the view that the upside risk to inflation outweighed the downside risks to growth and, therefore, decided to increase the policy rate by 100 basic points to 14.5 per cent.

Mr. Amissah- Arthur said the Bank of Ghana 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 US dollar in the foreign exchange market as a result of high demand, leading to a depreciation of 8.3 percent 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 is shifting towards Asia, especially China, in which transactions were mostly conducted on cash basis.

The governor said policy intervention would, therefore, aim at minimizing the risk 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: Ghanaian Times