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BoG to review medium term inflation target

By: Emmanuel Bruce
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Dr Ernest Addison (left) addresing the media at the press conference

THE Bank of Ghana (BoG) intends to review downwards, its medium-term target for inflation, following the rebasing of the Consumer Price Index (CPI) by the Ghana Statistical Service (GSS) to reflect weights from the Ghana Living Standards Survey of 2017 and a revised base year of 2018.

As a result of the rebasing, the headline inflation for August was estimated at 7.8 per cent, moving it below the central path of the Bank of Ghana’s medium-term inflation target of 8±2 per cent.

Addressing the media after the Monetary Policy Committee (MPC) meeting on September 19, the Governor of the Bank of Ghana, Dr Ernest Addison said “We are all quiet surprised with the new rate of inflation of 7.8 per cent which came about because of the rebasing and the Ghana Living Standards Survey.”

He said the central bank was, therefore, accessing what the new inflation rate meant in terms of its medium-term target.



“We currently have a target of eight per cent which means that if we are to accept the 7.8 per cent, we are slightly below the medium-term target. We think this is the time for us to review the optimal target for inflation for a country like Ghana,” he stated.

“When your trade partners inflation is below five per cent and you have eight per cent inflation target, you are not competitive so I think this is an opportunity to drive inflation closer to our trading partners. We should be looking at setting a lower medium-term target for inflation.

“Whether it should be five per cent or six per cent is where the debate will be but I expect that by the end of this medium-term period, we will have to reset the target for inflation lower,” he noted.

Maintains policy rate at 16 per cent
Earlier the BoG maintained the policy rate at 16 per cent, citing weak revenue mobilisation and rising fiscal deficit as the reason.

“The fiscal situation remains a concern and strengthened efforts would be needed to close the deficit gap,” he noted.

Dr Addison said the committee was concerned about the continued revenue weakness which required expenditure adjustments to contain a larger than projected budget deficit.

He said global conditions and inflation developments in the country had created some policy space for monetary policy which, however, could not be exploited in the current circumstances.

“Looking ahead, it is expected that the full implementation of new tax measures will likely impact revenue performance in the last quarter to help achieve the fiscal deficit target set for the year,” the governor added.

Revenue performance
Provisional data from January to July 2019 shows that total revenue and grants amounted to GH₵26.8 billion (7.7 per cent of GDP) compared with the envisaged target of GH₵31.8 billion (9.2 per cent of GDP).

The revenue shortfalls were mainly from international trade taxes.

Total expenditures and arrears clearance grew, in year on year terms, by 22.4 per cent to GH₵40.4 billion (11.7 per cent of GDP), marginally below the target of GH₵42.9 billion (12.4 per cent of GDP).

These developments resulted in an overall budget deficit (on a cash basis) of 3.9 per cent of GDP as against the target of 3.2 per cent of GDP.

The primary balance also recorded a deficit of 0.7 per cent of GDP as against a programmed surplus of 0.1 per cent of GDP.

Public debt
The governor said the country’s stock of public debt rose to GH₵205.6 billion, representing 59.4 per cent of GDP at the end of July, 2019, compared with GH¢159.7 billion, representing 53.1 per cent of GDP at the end of July 2018.

Of the total debt stock, domestic debt was GH₵98.4 billion (28.4 per cent of GDP), of which GH₵10.7 billion (3.1 per cent of GDP), represented bonds issued to support the financial sector clean-up, while external debt was GH₵107.2 billion (31.0 per cent of GDP).