Inflation To Decline To 7.5%

The Monetary Policy Committee (MPC) of the Bank of Ghana has predicted that inflation at the end of this year will range between 7.5 per cent and 11 per cent.

Inflation declined further to 14.8 per cent in January from the December figure of 15.97 per cent, consistent with a steady decline in inflation rates since July last year, after the number peaked at 20.74 per cent in June.

Although, there are some inherent rise in the outlook of the economy with regard to anticipated utility price hikes and possible increases in the crude oil prices, the central bank thinks that there were generally favourable conditions that would help ease inflation further down for the rest of the year.

According to the MPC, the downward trend in inflation, as well as the slash of the prime rate, would bolster credit creation, particularly to the private sector.

According to the central bank, business and consumer confidence had improved relative to conditions that existed in October last year. "The results of the most recent surveys conducted last month January, 2010 showed that the overall assessment of economic prospects by businesses and consumers are strongly positive," according to the MPC report.

The Composite Index of Economic Activity (CIEA), which is used in gauging the trend of economic activity, declined by 2.1 per cent and 0.3 per cent in the first and second quarters of 2009. However, during the third quarter of last year, the CIEA suggested growth in output by 2.3 per cent and by a further 9.9 per cent during the fourth quarter.

According the Bank of Ghana (BoG), credit conditions over its recent survey showed an easing of credit conditions to large enterprises and households.

However, credit to small and medium-scale enterprises (SMEs) and mortgages continued to be tightened. Credit to the private sector and public institutions in 2009 increased by GH¢961.8 million, up by 16.1 per cent compared with GH¢ 1.82 billion in 2008, representing 43.9 per cent.

The private sector's share of the credit over the period was only 15.8 per cent as compared to 48.1 per cent for the same period in 2008. According to the MPC, commercial banks' credit to the private sector declined by 0.2 per cent in 2009 down significantly from a growth of 25.2 per cent recorded the previous year.

One of the positive signs from the external environment is the marginal decline in remittances in 2009, which amounted to US$l .57 billion a growth of 16.6 per cent compared to US$1.68 billion, representing a growth of 19.2 per cent.

With gross international reserves reaching three months of import cover amounting to US$3.2 billion from US$2 billion recorded at the end of 2008, and a favourable foreign exchange earnings from cocoa and gold, the country's cedi has been cushioned against losses to the major international trading currencies.

According to the MPC report, developments through the last quarter of 2009 and early this year suggested improved economic fundamentals driven by diminishing inflationary pressures, exchange rate stability, a pick-up in economic activity and improvement in business and consumer confidence.

Source: Graphic Business