Monetary Policy
MPC Press Release - February 2004
Friday, 27 February 2004 00:00

Developments in the Consumer Price Index indicate that inflationary pressures continue to diminish. Headline inflation dropped further from its December 2003 level of 23.6 per cent to 22.4 per cent by January 2004. The monthly changes in the CPI continued the steady decline since April 2003. Thus, over the 10-month period to January, the CPI has risen by only 4.5 per cent. Overall, increases in both food and non-food inflation have been modest, and among the lowest on record.

The latest numbers show that the growth of the monetary aggregates continued to slow down. Broad money (M2+) growth declined from 50 per cent in December 2002 to 38.0 per cent by 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, but this compares with an annual rate of 34.3 per cent recorded in January 2003. The principal factor underlying reserve money growth was the accumulation of net foreign assets by the Bank of Ghana.

Interest rates on the money market have stabilized somewhat in the first two months of 2004. These 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 now around 17.6 per cent in February 2004.
  • Similarly, on the Interbank money market, rates have moved to around 15.8 per cent by February 2004 from 18.0 per cent at end December 2003 compared to 27.0 per cent in June 2003.
  • Commercial bank base rates have 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 in 2003.
  • There continues to be a shifting market preference in favour of long-dated government maturities. The share of 91-day Treasury Bill declined to 38.9 per cent by January 2004 from 43.3 per cent in December 2003, and 50 per cent in December 2002. The share of the one-year note on the other hand 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 the end of December 2002.

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