Ghana Market news week ending Aug 29, 2005

Last week end the 91 day T Bill rate dropped a number of basis points to 14.81% from 15.37% the week before. This is in response to the further drop in year on year inflation to 14.9% in July from 15.7% in June. The downward trend in the benchmark interest rate looks likely to be sustained for the next few weeks. However the crucial issue is inflationary expectation going forward as oil prices cross the US$70.00 mark. At this level, it is likely that government will have to resort to full cost recovery on ex refinery prices and pass on the full cost to the consumer, perhaps the right thing to do under the circumstances.

Even Nigeria, the six largest oil producing country in the world has had to increase its ex. pump prices in response to the increase in the world market price of crude. If that happens in Ghana, there is a likelihood that inflation may creep up closer to the end of the year, thereby having a collateral effect of increasing interest rates by the Monetary Policy Committee. It will then be hard for Government to achieve the 13.5% inflation rate projected in the 2005 budget. That notwithstanding, the relative macroeconomic stability achieved in Ghana will likely hold under the positive policy directives in play.