Accra, July 21, GNA - The Bank of Ghana on Tuesday held its prime interest rate at 18.5 per cent, citing reduced volatility in the domestic economy.

"The uncertainties associated with the possible fallout of the global financial crisis and volatility in the domestic economic environment seems to be dissipating," Governor Paul Acquah told a news conference in Accra.

"The risks in the outlook for disinflation and growth are balanced and therefore the Monetary Policy Committee decided to maintain the prime rate unchanged at 18.5 per cent," Dr Acquah added. However, he said, consumer sentiments remained increasingly soft while latest surveys indicated that business confidence was at a low point with half of respondents having revised downwards expectations about economic prospects.

Dr Acquah said demand growth was moderating from the rapid pace recorded a year earlier and was underlined by significant tightening of conditions in the credit markets. Inflation and exchange rate expectations remain strong, but price and exchange rate volatility has reduced somewhat during the second quarter of the year.

Dr Acquah said the fiscal deficit was being reduced with robust revenue growth and reduced budgetary outlays, keeping government spending within established resource envelop. He said funding the underlying borrowing requirements would need to be better balanced with the timely disbursement of budgetary and other external support to ease interest rate pressures on the domestic money market.

Dr Acquah said trade deficit has narrowed in part due to a slowdown in imports across all categories, citing the sharp decline in the oil import bill as a major factor.

He indicated that Oil imports for the first half of the year totaled US$449.61 million compared with US$1.3 billion for the same period in 2008, representing a 66.1 percent fall. Dr Acquah said there was still uncertainty about remittances and capital flows while the potential increases in oil prices remained a source of major risk in the payments outlook. "But the external support both for the budget and balance of payments coming from agreements with the IMF and the World Bank constitute a major stabilization factor."

Mr Sampson Akligoh, Analyst at the Research Division of Databank, told Ghana News Agency that he would have been happier to see a bolder step in reducing the rate in line with the inflation outlook for the third quarter of the year.

"They are being overly cautious. I think they are concerned about some crude oil development and the fact that despite the global economic recovery, there is some risk to the downside as well. So being on a safer side they want to maintain the rate.

"Clearly, inflation has stabilized around 20.7 per cent that we have currently and I am even thinking we are going to see some declines in August and September mainly due to low food price development and the stability of the cedi."