Confidence indicators for both businesses and consumers slumped in the first and second quarters, driven by concerns over rising inflation, a weak currency and less cheer about people’s welfare, the Bank of Ghana (BoG) has said. It said a survey of sentiments in May saw the consumer confidence index decline to 99.5 from 102.8 in March, while the business confidence index dropped to 96.4 in a March survey from 102.7 in December 2011. “The weakening of business sentiments was influenced by inflationary expectations and exchange rate depreciation,” said BoG Governor Kwesi Amissah-Arthur at a press briefing of the bank’s monetary-policy committee (MPC) in Accra. Banks have been tightening credit to the private sector due to an increase in the cost of funds, which is the result partly of the recent boost to yields on Treasuries. These higher yields have been part of the Central Bank’s strategy to bolster the cedi. The local currency depreciated by 15.1% in the first five months of the year, Mr. Amissah-Arthur said, compared to a depreciation of 1.9% in the same period of 2011. The weak currency has caused inflation to rise for three consecutive months since March, reaching 9.3% in May -- the highest since October 2010. The BoG is targetting an inflation rate of 8.5% at the end of 2012. Mr. Amissah-Arthur said the risks to the inflation outlook have increased, and that the BoG has decided to raise its policy lending rate to 15% from 14.5% to fend off price pressures. In May, food inflation rose to 5%, the highest in 18 months, while non-food inflation surged to an 11-month high of 11.9%. The rate-hike was the third in consecutive meetings of the MPC this year as it took steps to stabilise the volatile cedi and preserve macro stability. Apart from tighter monetary policy, the BoG has changed the way banks hold their required reserves for foreign currency deposits and introduced bills with shorter maturities to claw back excess cedis in the economy. “...The measures have begun to take effect. Increases in the policy rate have led to upward adjustments in rates of money market instruments and improved the attractiveness of cedi assets compared to foreign currency assets,” Mr. Amissah-Arthur said. Economic growth remains strong, though a slowdown is expected after last year’s oil-fuelled 14.4% expansion in GDP. The Composite Index of Economic Activity (CIEA), used by the BoG to track the pace of economic activity, grew at an annual rate of 13.7% in March, compared to an increase of 23.7% in March 2011. Export earnings soared by 25% year-on-year to US$6.6billion in the first five months of 2012, with a boost to receipts from gold, cocoa beans and crude oil. Imports were US$7.5billion, an increase of 28% over the same period of 2011, and the trade deficit widened to US$0.94billion from US$0.6billion a year ago. The crisis in the euro zone threatens the prospects for Ghana’s economy as it could dampen demand for commodities and hurt export receipts, said Amissah-Arthur. Weak advanced-country growth and recent slowdowns in major developing economies led by China and India have amplified fears about the spread of contagion from the debt-crisis in Europe. The European Union (EU) is the main market for Ghana’s non-traditional exports, accounting for 46% of earnings in 2011. The ECOWAS market, meanwhile, has become an increasingly important buyer of these products and with its growing economies could help limit the importance of the EU in this aspect of the country’s trade.