millison k narh : monetary policy and outlook for economic growth speech by mr millison k narh, second deputy governor of the bank of ghana, at the databank investor forum, accra, 26 april 2010. * 1. * * introduction distinguished ladies and gentlemen, i would like to thank databank for inviting me to this forum which has brought together institutional investors to apprise themselves of policy initiatives and assess investment opportunities in the country. i understand that databank is celebrating twenty years of entrepreneurship this year. let me take this opportunity to congratulate you on your significant achievements and contributions towards ghana ’ s financial sector over the past two decades and hope that you will expand your activities further in the coming years. my address today will focus on “ monetary policy and outlook for economic growth ”. i will seek to address this topic by focusing on three key issues. that is, the bank of ghana ’ s monetary policy stance, the stabilization role of monetary policy in the ghanaian economy and lastly, the outlook for economic growth in 2010 and beyond. 2. the monetary policy stance of the bank of ghana the primary objective of the bank of ghana is to maintain price stability. the objective of price stability is not an end in itself ; rather it is in the interest of promoting balanced and sustainable growth in the long - term. indeed, the clear focus on price stability as stipulated in the bank of ghana act 612 reflects a consensus from various policy dialogues that “ inflation is a major obstacle to the growth process and price stability can contribute to accelerating growth by promoting an enabling environment for efficient investment and savings decision - making ”. various country experiences, including ghana, show that sustained periods of strong growth have always gone hand in hand with low inflation whereas low growth episodes occur under highly inflationary environments. as you may be aware, the ghanaian economy witnessed consistent growth periods in the recent past with real gdp growth increasing steadily from 3. 7 percent to 7. 3 percent within a spate of nine years. to a large extent this growth phase of the ghanaian economy was largely supported by a policy environment aimed at macroeconomic stability which anchored inflation expectations. this was combined with structural reforms, particularly in the financial sector, needed to increase financial intermediation and promote economic growth. although growth was achieved, the reemergence of macro instability underpinned by both external and domestic factors such as considerable credit expansion to both government and the private sector dislodged inflationary expectations and increased inflationary pressures in

, as economic stability gains a firm hold, the private sector must reposition itself to drive the growth agenda. as noted in the 2010 budget and economic policy statement, the government will continue with the fiscal consolidation process which started in 2009 with a view to stabilizing inflation and reducing exchange rate volatilities. external sector policies will also focus on building up reserves ( which is currently at 3 months imports cover ), and reducing the current account deficit, while pursuing strategies to increase economic growth in 2010. the budget is optimistic about growth prospects in 2010 with a revised real gdp growth of 6. 5 percent compared to an initial program target of 5. 0 percent. starting from 2011, ghana will benefit from oil production which is expected to attract additional investments into the country, and boost economic growth. initial production is projected to contribute about 17 percent towards ghana ’ s gdp. accordingly, real gdp growth has been estimated to increase above 20 percent in 2011. there is a general consensus that the contribution of monetary policy is to stabilize the economy and create an enabling environment for sustainable growth in the long - run. looking forward therefore, the bank of ghana ’ s monetary policy stance will remain focused on steering the economy towards price stability whilst deepening financial intermediation processes to ensure that credit flows to the productive sectors of the economy. despite the role of monetary policy in creating an enabling environment, promoting long - term growth is a complex process and requires the support of structural reforms that seek to remove “ binding constraints ” on the business environment to ensure sustainable growth. clearly, monetary policy is limited beyond the scope of resolving structural bottlenecks that often constrain growth in the ghanaian economy. the commitment of the bank of ghana to ensure macroeconomic stability and ease credit constraints must therefore be supported by policy reforms to strengthen the investment climate, increase productivity and innovation, as well as close infrastructural gaps especially in the energy and road sectors. it is anticipated that the increased government revenues from the oil production will create the much needed fiscal space to close the country ’ s infrastructural gaps and ease some of these growth constraints. additionally, the implementation of credible fiscal consolidation policies underscored by growth - enhancing measures should provide the needed boost for the private sector and accelerate economic growth. 5. conclusion ghana ’ s economy has rebounded strongly from the instability that characterized the first half of 2009. recent trends indicate that macroeconomic stability has gained ground with declining inflation, exchange rate stability, growing