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

scheme should now operate in practice. the guarantee will be provided for two years on commercial terms. the pricing of the guarantee and the terms and conditions are critical. the primary consideration underlying this decision is to ensure financial stability at minimum cost to the taxpayer. for instance, the price should reflect a market - based assessment of the benefits to the banks covered by the guarantee and thereby minimise any impact on banks not covered by the guarantee ; it should minimise moral hazard implications such that the banking system will not take on additional risks on the back of this guarantee. designing such a scheme that takes account of these various principles is a complex task and work is at an advanced stage and will be completed over the weekend. the central bank, as part of the eurosystem, is actively involved in the provision of significant liquidity to credit institutions. we are also actively involved in international fora that are discussing solutions to the global crisis. internationally, liquidity conditions remain difficult and the likely duration of the crisis in international markets remains uncertain. accordingly, the outlook for the global economy remains uncertain. against this international background, and alongside a necessary rebalancing of our economy after more than a decade of very strong growth, the irish economy is entering a difficult period. we have shown in the past as a country that we can face up to difficult challenges and i suggest it will be no less on this occasion. it we adopt the correct decisions now, the medium term outlook for the economy is good.