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MPC rate remains unchanged despite a decline forecast by economist

Feb. 3, 2017, 2:23 p.m.

The Monetary Policy Committee (MPC) of the Bank of Ghana maintained its prime rate despite a potential drop forecast by economists.

The policy rate which stood at 25.5 percent in November last year after a 50bps reduction, remains same for January 2017. The stationarity of the rate was accorded to government’s inability to meet the economic targets set for the end of 2016 in the IMF deal and also as a measure to mitigate the recent free fall of the cedi.

Ghana’s central bank expects the government to hit its medium-term goal for lowering inflation in 2018 rather than in late 2017.

PPI dips

The Producer Price Inflation (PPI), an index for the measurement of average change over time in the prices received by domestic producers for the production of their goods and services sharply declined in the closing month of 2016. PPI for November stood at 4.9 percent, representing a 7.0 percentage point reduction from November’s estimate of 11.9 percent.

The significant dip in the PPI in December stemmed from the Utilities sub-sector which recorded a negative inflation of 7 percent, also representing 45.3 percentage points reduction from previous estimate. There were also significant declines in rates at the Mining and Quarrying sub-sectors and Manufacturing sub-sectors.

The Mining and Quarrying sub-sectors had an inflation of 15.6 percent, a 3.8 percentage point reduction from November’s estimate. The Manufacturing sub-sector also stood at 5.5 percent, representing 0.6 percentage point reduction from November’s figure.

Equity market

The equity market sustained its bullish outlook as the indices recorded upward adjustments in all the trading sessions of the week. The GSE-Composite Index rose by 0.49 per cent to 1,767.89 points, recording a year-to-date return of 4.67 per cent. The GSE-Financial Stock Index also went up by 0.59 percent to 1,653.78 points, corresponding to a year-to-date return of 7.01 percent.

Total traded volume for the week stood at 2.16 million shares, corresponding to a monetary value of GH¢1.13 million. The most actively traded stocks were UT Bank, CAL Bank and Ecobank Transnational Incorporation as they cumulatively accrued 77.44 percent of the week’s traded volume.

Performance of the cedi

The cedi recorded its four-streak depreciation to the dollar and euro this week. Against the dollar, the cedi depreciated by 0.74 percent to trade at GH¢4.27 as the dollar steadied on the international currency market following improved investor sentiment from Donald Trump’s reaffirmation at boosting U.S.’ manufacturing sector through corporate tax cut. The year-to-date depreciation of the cedi against the dollar stood at 1.64 percent last week.

Commodities market

Brent crude ended marginally week-on-week despite news of a rise in U.S. production on the back of continued effort by OPEC to reduce global output. Brent Crude gained 0.05 percent to trade at $55.52 per barrel. The marginal rise also stemmed from reduced increased demand in China as their Lunar New Year holiday kicked start.

Gold also traded lower at $1,188.10 per ounce last week. The fall in price of the yellow metal was on the back drop of weakened demand as renewed interest in the greenback stemmed from Donald Trump’s reaffirmation of his policies decisions which affected the greenback in the previous week subdued in the trading week. This therefore caused the yellow metal to shed 1.35 percent of its previous weeks offer price.

The stockpile of cocoa beans in warehouses and ports of Ivory Coast pushed the price of the commodity downwards as buyers desired buying below the minimum guarantee prices. Cocoa lost 2.10 percent to close the week’s trading at $2,095 per metric tonne. Prices is also foreseen to reduce further as recent downpours in Ivory Coast is anticipated to boost production of the soft crop.

Coffee also retreated from a two-month high on profit-taking as the commodity was getting technically overbought. The soft crop traded at $1.524 per pound, after trimming 0.52 percent w/w.

International market

The international equity market went down in the week under review as most stocks shed prices. Investors anxiety on policy direction by the new-U.S. Government weighed on most U.S. stocks, especially, the Banking and Financial sectors. The Banking stocks dropped 1.1 per cent while as Financial stocks also went down by 0.6 per cent. This affected performances of the S&P 500 index and the Dow Jones Industrial Average (DJIA). The DJIA lost ground for the fifth straight session in the week under review alone as it erased all of its gains recorded in 2017. The Dow Jones Industrial Average hence settled at 19,827.25 points, after trimming 0.39 percent. The S&P 500 index also tumbled by 0.15 percent week-on-week to settle at 2,271.31 points.

The UK’s FTSE 100 suffered its first drop in seven weeks as it shed 1.90 percent week on week. The first half of the trading week saw the FTSE 100 recording gains as the pound weakened on the international market. However, the index yielded to a weekly lost as investors exhibited anxiety over the U.S economy. The FTSE 100 index settled at 7,198.44 points on Friday.

The Asian’ NIKKEI 255 Index dropped in the week under review following losses in the Shipbuilding, Machinery and Banking sectors. The NIKKEI 225 index lost 0.77 percent to close at 19,137.91 points.

The general declining trends in equities on the international equity market was not much different from those on the African continent. The JSE All Share Index for instance shed 0.50 percent to close trading at 52,532.26 points. The Nigeria All-Share Index also trimmed 0.39 percent to trade at 26,223.54 points. The Nairobi All-Share Index, however, recovered 0.08 percent of its lost as it traded at 124.04 points.