Signals stronger for interest rate cuts;..as inflation falls to 14.78%

As the Monetary Policy Committee (MPC) begins its meeting today, the expectations of the business community is that prime rates will be reduced.

Thankfully, signals are positive for the MPC to cut the Bank of Ghana’s (BoG’s) prime rate for the second consecutive time as inflation drops for the seventh consecutive time.

Headline inflation further dropped to 14.78 percent in January from 15.97 percent in December 2009, representing a decline of 1.19 percentage points. Since reaching its highest level of 20.74 percent in June last year, head-line inflation has consistently been on the decline.

The January rate is the lowest figure of the past twelve months. It shows 5.08 percentage points lower than the January 2009 rate of 19.86 percent.

The prime rate - which eased to 18.0 percent in November last year - was stuck at 18.5 percent for the nine consecutive months to October last year, owing to the high inflationary pressure that was in the economy.

Since the outlook for inflation points to further declines, analysts expect MPC to cut the prime rate again because the inflationary trend is a key determinant factor.

Executive Director of FirstBank Financial Services, Mr. Mawuli Hedo, said a cut of between 2.0 and 3.0 percentage points is a realistic range for the MPC to ease the prime rate, as it begins its crucial meeting this morning to decide on the rate.

“At its last meeting in November, we think the outcome was a cautious move by the MPC. With the new headline inflation figure, the outlook should be clearer now for the MPC to cut the policy rate more significantly,” Mr. Hedo indicated.

Dr. Grace Bediako, Government Statistician, briefing the media in Accra on the latest developments in the Consumer Price Index (CPI) attributed the continuous decline in headline inflation to steps government took in the previous year to tighten fiscal and monetary policies.

“There is a lot of attention on the country’s inflationary rate,” she pointed out.
Official figures released by the Ghana Statistical Service (GSS) named recreation and culture, furnishing, household equipments and health, as the main movers of the decrease in the non-food component national consumer basket.

Whilst products like sugar, jam, honey, syrups, chocolate and confectionary, milk, cheese, eggs and mineral water were the major contributors to the decrease within the food and alcoholic beverage component of the basket.

On regional inflation, the Upper East and Upper West Regions recorded the highest inflation of 24.57 percent, with the Northern Region recording the lowest of 9.87 percent.

The Central Region which placed second had 22.68 percent, Volta Region 19.93 percent, Ashanti Region, 15.52 percent, Brong Ahafo region, 14.20 percent, Western Region 13.75 percent, Greater Accra region 12.57 and Eastern Region 10.15 percent.