Accra, July 6, GNA - The Monetary Policy Committee (MPC), on Wednesday cut the policy rate by 50 basis points (0.5 per cent) to 12.5 per cent from 13 per cent, citing low inflation and improved economic environment.

"The sources of uncertainty that existed at the last MPC meeting have substantially abated. From the analysis and the data presented, inflation expectations of businesses and the financial sector are well anchored," Mr Kwesi Amissah-Arthur, Governor of the Bank of Ghana, told a press conference in Accra.

"The current state of the economy and the assumptions on both the domestic and external outlook as well as the inflation forecast suggest that in the near term, stable and favourable economic conditions will hold," he added.

Mr Amissah-Arthur said the MPC was committed to price stability to provide supportive environment for growth, adding, the Bank was confident that the annual inflation target of nine per cent was achievable.

Inflation as at the end of May stood at 8.9 per cent. Mr Amissah-Arthur said the external outlook remained favourable as gold and cocoa prices continued to hold firm.

"On the other hand, crude oil range of price adjustment are uncertain but forecast to be within tolerable limits, thus reducing the downside risks connected with oil imports," he said.

The Governor, who is also Chairman of the MPC, said the Bank of Ghana's composite index of economic activity showed a year-on-year growth of 26.5 per cent and 19.4 per cent in April and May respectively compared to real growth of 23.7 per cent in the first quarter of 2011.

Mr Amissah-Arthur said survey of consumer and business sentiments conducted in June this year, showed softening sentiments on growth.

The overall business confidence index fell to 104.1 in June from 106.6 in April, with firms less optimistic about the level and intensity of their capital expenditures and expectations of lower sales, profits and employment opportunities.

On the other hand, the consumer confidence index declined from 100.7 in April to 99.5 in June, driven by weaker welfare expectations.

On government fiscal operations, Mr Amissah-Arthur said total revenue and grants for the first half of the year stood at GH¢5.1 billion while international trade taxes, comprising import duties, import VAT, petroleum taxes and National Health Insurance Levy fetched GH¢1.6 billion and indirect domestic taxes contributed GH¢649 million.

Total expenditure for the first six months of the year stood at GH¢5.5 billion. Wages, salaries and related expenditures amounted to GH¢2.1 billion, absorbing close to 48.5 per cent of domestic revenues.

He said the fiscal operations for the first half of the year resulted in a narrow budget deficit of GH¢701.9 million compared with programmed deficit of GH¢645 million.

Mr Amissah-Arthur said the deficit was financed by a net borrowing of GH¢599.8 million and a net foreign loan inflow of GH¢102 million.

He said as at end of May 2011, the domestic debt stood at GH¢10 billion, up from GH¢8.3 billion in December 2010 while the external debt stock rose from $6.3 billion to $6.7 billion within the same period.

This, Mr Amissah-Arthur said, brought the total public debt to GH¢20.1 billion as at the end of May this year, equivalent to 35.4 per cent of GDP down from 39.1 per cent of GDP at the end of 2010.

Mr Amissah-Arthur said Gross International Reserves as at the end of May stood at $4.7 billion, representing 3.7 months of import cover.

The Governor said total merchandise exports during the period amounted to $5.3 billion, representing a growth of 66.2 per cent over the $2.1 billion for the corresponding period in 2010, driven by oil, gold and cocoa beans.

Mr Amissah-Arthur said 8.6 million barrels of crude oil was exported during the first five months of 2011 valued at $954.6 million while exports of gold and cocoa amounted to $2 billion and $1.4 billion respectively.

On the flip side, total merchandise imports amounted to $5.6 billion during the first five months, an increase of 32.4 per cent over the same period last year.

Mr Amissah-Arthur said crude oil imports declined by eight per cent to $391.9 million while imports of oil products were up by 18.7 per cent to $618.5 million.