Developments in the Consumer Price Index (CPI) indicate that inflationary pressures continue to diminish with headline inflation dropping from its December 2003 level of 23. 6 per cent to 22.4 per cent by January 2004

Briefing the media in Accra on Friday, Dr Paul Acquah, Governor of the Bank of Ghana, said the monthly changes in CPI continued the steady decline in April 2003 and over the 10-month period it rose by only 4.5 per cent with overall increase in both food and non-food inflation being modest and among the lowest on record.

He announced the reduction of the Bank's Prime Rate to 20.0 per cent from the previous 21.5 per cent it posted last month prompting expectation that interest rates would drop sharply.

Dr Acquah attributed the depreciation in the Prime Rate to strict fiscal monetary discipline and sound economic policies of the Government.

He said latest numbers show that the growth of the monetary aggregates continued to slow down with broad money supply growth declining from 50 per cent in December 2002 to 38.0 per cent at end of December 2003.

Year-on-year growth in reserve money declined from some 42.6 per cent in December 2002 to 28.2 per cent in December 2003.

"In January 2004, reserve money growth picked up to 31.9 per cent in recorded in January 2003, with the principal factor underlying reserve money growth being the accumulation of net foreign assets by the BoG."

Dr Acquah said interest rates in the period under review, stabilized reasonably in the first two months of this year and followed sharp declines in the second half of 2003.

The benchmark 91-day Treasury bill rate eased to 18.5 per cent in December 2003 and is currently fixed at 17.6 per cent in February 2004. On the inter-bank money market, rates have moved to around 15.8 per cent by February 2004 from about 18.0 per cent at the end of December 2003. This is lower compared to the 27.0 per cent in June 2003.

He said commercial bank base rates had also followed the pattern with many banks announcing base rate drops to around 27.0 per cent in February 2004, from an average of 32.0 per cent last year.

The Governor noted that there was a continuous shifting in the market preference in favour of long-dated government maturities with the share of the 91-day Treasury Bills declining to 38.9 per cent by January 2004 from the 43.0 per cent by December 2003. It was 50 per cent in December 2003.

The share of the one-year note on the other have has increased to 14.8 per cent by January 2004 from 13.3 per cent at the end of December 2003 and 9.4 per cent at end of December 2002.

Dr Acquah said the economy has been responding well to the policies underlying the fiscal and monetary policy framework and improved market expectations.

"Available data show that economic activity picked up significantly in the second half of 2003," adding, "the Bank of Ghana's Composite Indicator of Economic Activity, which measures real sector activity including output of selected key enterprises, industrial electricity consumption, domestic VAT, port activity, imports, exports and employment contributions show economic activity on the increase."

He said the BOG's survey show increasing business confidence and declining inflation expectations.

In addition, preliminary data released by the Ghana Statistical Service indicates a GDP growth of 5.2 per cent, higher than originally projected.

He noted that available data also show that the banking system as a whole remained well capitalized, profitable and liquid. "Banks as a whole have made adequate provisioning for non-performing loans and this has placed them in a position to extend credit to the private sector."

He explained that credit to the private and public enterprises from domestic money banks in 2003 amounted to 3,400.0 billion cedis, representing 68.3 per cent of the credit going to the private sector. The amount is 33.9 per cent over the 2002 level.

Manufacturing had 32.1 per cent; commerce and finance 18.8 per cent, agriculture, forestry and logging had 15.6 per cent and import trade 12.7 per cent.

He said the external payments position for 2003 turned out to be significantly better, on the back of cocoa earnings, than initially forecasted.

Dr Acquah said the current account including official transfers recorded a surplus of 40.76 dollars compared to a deficit of 30.57 million in 2002 and a projected deficit of 130.94 million dollars for 2003.

The improvement in the current account was helped by an increase in cocoa earning and bolstered by net private transfers.

Private inward remittances representing transfers from nongovernmental organisations (NGOs), religious groups and individuals through banks and finance companies stood at 2,164 million dollars for 2003 an increase of 57.5 per cent over 2002, with 605 million dollar coming in the last quarter alone.

Gross international reserves reached a level of 1,422 million dollars at end December 2003 and increasing further to 1,455 million dollars by February 2004, also representing 4.3 per cent of imports, a new record.

Dr Acquah, however, said there were some downside risks such as the softening of projected prices of Ghana's major export commodities. "Nevertheless exports are projected to grow by some 5.0 per cent in 2004 with increased output of cocoa and gold as well as non-traditional exports.

"Oil price developments are still uncertain as to the direction of movements in the light of recent OPEC cuts," Dr Acquah said. He called for the full implementation of the Multi Donor Budget Support arrangement as was done last year to ensure the timeliness of donor inflows.