The country's Central Bank says the persistent upward trend in inflation cannot affect its goal of tightening monetary policy.

The latest consumer price index pushed year-on-year inflation from 15.29 percent in April to 16.88 percent in May.

This is the first time in almost five years that inflation has risen above the Bank's prime rate, currently at 16 percent.

In an interview with the B&FT, the Head of the Bank of Ghana (BOG) Monetary Policy Analysis Department, Dr. Benjamin Amoah, said that the new inflation numbers are eroding real interest rates. He, however, stated that the Bank is not disturbed because the prime rate at its current level is not only sensitive to the outlook of inflation, but also to the economic growth target for the year.

The bank remained committed to responding appropriately to all economic and financial developments to keep inflation under control without undermining sustainable economic growth.

He said there was therefore no need for the Monetary Policy Committee (MPC) to intervene under any emergency reasons ahead of its regular bi-monthly schedule, which falls due in July, to change the prime rate.

"We are monitoring closely the economic developments and there is no need for any emergency meeting on the prime rate at the moment. It must not be forgotten that we are in the harvest season and year-on-year inflation is expected to retreat appreciably in June," he added.

Dr. Amoah explained that the food prices account for about 44 percent of the consumer price index, which when held downwards should reduce inflation significantly.

The prime rate was increased by 175 basis points from March to 16 percent in May; at the time the Ghana Statistical Service was still gathering data to compute the inflationary outturn for the month.

With the outturn for the month rising above the going prime rate, financial markets are raising concerns over real interest rates.

Dr. Amoah pointed out that the inflation crisis is not exclusive to Ghana and said it is a global phenomenon, triggered by the escalating world crude oil prices.

He said it is the policy mandate of the MPC to position the prime rate, which need not necessarily be above the inflation rate at all times.

"The Bank of England has also cut interest rates, opposite to the direction of inflation. May inflation rate in China posted 8.5 percent, compared to 3.0 percent for the same period in the previous year," he cited.

Keen on the growth target for the year, Dr. Amoah said what is needed to reap maximum benefits in the present circumstances is good economic management.

The economy grew at 6.2 percent last year. Growth and inflation targets for the year are both seven percent.


Source: B&FT