BANK OF GHANA MPC MEETING JANUARY 2021 – PART 2

Summary-of-Economic-Financial-Data-January-2021

January-2021-MPC-Press-Release

IN BANK OF GHANA MPC MEETING JANUARY 2021 – PART 2, I DISCUSS THE FOLLOWING TOPICS:

— PRICE DEVELOPMENTS;

— REAL SECTOR INDICATORS;

— MONEY MARKET RATES.

AS USUAL, YOU CAN DOWNLOAD THE TWO UNDERLYING DOCUMENTS AT THE BEGINNING OF THIS ARTICLE.

1] PRICE DEVELOPMENTS

THE ANNUAL CONSUMER PRICE INFLATION IS THE CORE INDICATOR FOR PRICE DEVELOPMENTS. AFTER BEING WITHIN THE RANGE OF 8+/-2 PERCENT FOR SOME TIME, IT SLIPPED OUT OF THIS RANGE IN DECEMBER 2020. THIS WAS MAINLY DUE TO FOOD PRICES. THESE WENT UP BY 14.1 PERCENT, WHEREAS THE NON-FOOD PRICES ONLY INCREASED BY 7.7 PERCENT.

I  ASSUME THAT WE CAN EXPLAIN THE CURRENT SITUATION THROUGH SEASONAL ASPECTS. IT IS A COMMON PICTURE THAT PRICES – ESPECIALLY FOOD PRICES – GO UP IN THE CHRISTMAS SEASON. THE FURTHER WE GO AWAY FROM CHRISTMAS, THE MORE PRICES WILL STABILISE. ON THE OTHER HAND, WE CANNOT EXPECT FOOD PRICES TO GO DOWN – THAT THEY HAVE NEVER DONE. BUT WE CAN EXPECT THE UPWARD TREND TO FLATTEN. THAT WOULD GET THE CONSUMER PRICE INFLATION AGAIN WITHIN THE 8+/-2 PERCENT RANGE OF THE BANK OF GHANA.

ADVERSELY, THE NON-FOOD ANNUALISED CONSUMER PRICE INFLATION RISE IS AT THE LOWEST RATE FOR NEARLY ONE YEAR. HOPEFULLY, THIS IS NOT IN ANY WAY PANDEMIC-RELATED, AND WILL GO ON AS THE ECONOMY REBOUNDS AGAIN.

2] REAL SECTOR DEVELOPMENTS

THE INDEX FOR ECONOMIC ACTIVITY [CIEA] DID NOT SHOW ANY NEW DATA FOR DECEMBER 2020. ALBEIT, THE PREVIOUS DATA SHOWED AN IMPRESSIVE INCREASE IN THESE ACTIVITIES. THERE MIGHT BE THE DANGER OF A SECOND LOCKDOWN AS CORONA-RELATED CASES INCREASE. BUT ON THE OTHER HAND, THE GHANAIAN ECONOMY HAS SHOWN RESILIENCE. THERE IS SURELY A GOOD CHANCE  THAT GHANA WILL ALSO OVERCOME THESE PERILS.

WE CAN ALSO SEE THIS REFLECTED IN THE CONSUMER AND BUSINESS CONFIDENCE INDECES. BOTH WERE AT A PEAK IN DECEMBER 2020. WE SHOULD BE AWARE THAT NEGATIVE DEVELOPMENTS IN THE PANDEMIC MIGHT INFLUENCE BOTH INDECES. BUT STRICT IMPLEMENTATION OF MEASURES TAKEN BY THE GOVERNMENT SHOULD HELP US OVERCOME PANDEMIC PERILS.

NEW GROSS DOMESTIC PRODUCT [GDP] FIGURES ARE NOT AVAILABLE. BUT, NEW ESTIMATES SHOW THAT WE CAN EXPECT POSITIVE GDP FIGURES WITHIN 2021.

3] MONEY MARKET RATES

THE MONEY MARKETS RATES SHOW A MIXED PICTURE. THE TREASURY INSTRUMENTS ARE MOSTLY STABILE. HOWEVER, THE SECONDARY MARKET SHOWS SOME FLUCTUATIONS, ESPECIALLY IN LONG-TERM PAPERS. I BELIEVE THAT INSECURITIES ABOUT FUTURE DEVELOPMENTS ARE THE CAUSE FOR THESE FLUCTUATIONS.

DEPOSIT RATES AS WELL AS TIME DEPOSITS REMAIN STABILE, WHILE THE AVERAGE LENDING RATE INCREASED AGAIN. THE CAUSE FOR THIS MIGHT BE INCREASED BORROWING BY THE GOVERNMENT.  THIS MIGHT LEAD TO LESS LENDING TO THE PRIVATE SECTOR. WE WILL SEE IN THE NEAR FUTURE HOW THE SITUATION DEVELOPS.

THIS CONCLUDES BANK OF GHANA MPC MEETING JANUARY 2021 – PART 2. PART 3 WILL DISCUSS THE FOLLOWING ISSUES:

— FOREIGN EXCHANGE RATES;

— COMMODITY PRICES;

— EXTERNAL SECTOR DEVELOPMENT; AND

— GOVERNMENT FISCAL OPERATIONS.

STAY TUNED….

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