The Central Bank on Monday announced a one per cent increase in the prime rate to 17 per cent, the second successive jump in as many months.
The Central Bank’s Monetary Policy Committee said the rate, the reference interest rate used by banks, was increased because of fears of high inflation.
“The current rise in inflation has pushed up the disinflation path further from the target in the horizon, and monetary policy needs to be vigilant to avoid a build-up in inflation expectations,” Dr Paul Acquah, Governor of the Bank of Ghana and Chairman of the MPC, told a press conference in Accra after a meeting of the Committee.
Inflation has consistently risen from 13.8 per cent in March to 18.4 per cent at the end of June, fueled by high food and crude oil prices.
Dr Acquah said the uncertainty about developments in crude oil prices, the rise in inflation and a surge in food prices had softened business and consumer confidence.
The increase in the prime rate is likely to aggravate the situation since it will translate into a further increase of the lending rates by commercial banks.
However, Dr Acquah said, there was still high optimism about general economic prospects.
He said the economy had continued its growth momentum on account of strong demand growth driven by exports and increased spending.
Cocoa beans, Ghana’s main export, and other products such as gold and non-traditional exports, including horticultural products, led a good rally of export products with strong performance in the first half of the year.
“The banking system remains liquid and is building diversified portfolios funded by increased deposits with some tightening in credit conditions. And the prospects are for continued growth at a robust pace,” Dr Acquah said.
On the overall balance of payments position, the country recorded a deficit of US$782.7 million in the first half of 2008, mainly due to the rising crude oil prices.
Oil imports for the period amounted to US$1,257.0 million (25.4 per cent of total imports) compared with US$846.6 million (24.4 per cent of total imports) for the same period in 2007.
Total merchandised exports for the first half of 2008 amounted to US$2,885.4 million, compared with US$2,142.8 million (a growth of 34.7 per cent) for the same period in 2007.
The Gross International Reserves at the end of June was US$2.3 billion and translates on average into goods and services import cover of 2.4 months.