Ghana Leaves Key Rate Steady as Policy Makers Seek Stable Cedi

ACCRA (Capital Markets in Africa) – Ghana’s central bank unexpectedly kept its benchmark rate unchanged as it balanced the risks to inflation and economic growth.

The Bank of Ghana’s Monetary Policy Committee left the rate at 25.5 percent, Governor Abdul Nashiru Issahaku told reporters Monday in the capital, Accra. Only two of six economists in a Bloomberg survey said the central bank would keep borrowing costs unchanged, while the remaining four predicted a rate cut of 50 to 150 basis points.

“Perhaps concerns over currency stability kept the MPC relatively cautious,”Razia Khan, head of Africa macro research at Standard Chartered Plc in London, said in an e-mailed note. “We saw room for a cautious 50 basis points easing.”

Policy makers reduced the rate in November for the first time since July 2011. While inflation has been outside the central bank’s target band of 6 percent to 10 percent since at least January 2013, growth in consumer prices eased to 15.4 percent in December, slowing for a third straight month.

The cedi weakened 0.5 percent to 4.36 against the dollar by 1:23 p.m. in Accra on Monday, extending losses for the year to 3 percent after sliding 11 percent in 2016.

Inflation Target
The bank’s forecast for inflation to fall within the target band was shifted out to 2018 from this year, Issahaku said. “There are concerns regarding the inflation outlook, which could be impacted by the pass-through effects of the recent exchange-rate volatility, persistent increases in food inflation and the fiscal” outcome, he said.

The central bank urged the government to narrow the budget deficit after provisional data for the fiscal period from January through November showed a shortfall of 7 percent of gross domestic product, exceeding the target of 4.7 percent because of weak revenue collection.

The central bank will maintain its tight policy course to stabilize the cedi, while continuing with foreign-exchange auctions and currency swaps, Issahaku said.

The economy probably expanded 4.1 percent in 2016, according to forecasts from the government, which is now led by President Nana Akufo-Addo after he won an election last month. GDP expansion will be supported by improved oil and gas production from new fields, the gradual rebound in growth in private-sector credit and improved sentiments and expectations, Issahaku said.