BoG raises rate to curb cedi fall
The Bank of Ghana (BoG) has unexpectedly raised its benchmark interest rate
by a 100 basis points from 21 per cent to 22 per cent in a bid to bolster the cedi which has seen some decline in value.
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The rate had been left at 21 per cent since the November meeting when it was raised by 200 basis points from 19 per cent.
The cedi has, from January to date, cumulatively depreciated by 17.2 per cent against the dollar as the government struggled to keep debt under control and battle drop in foreign currency reserves.
That prompted the authorities to turn to the International Monetary Fund (IMF) in April for emergency aid of about $900 million to help finance the fiscal gap and bolster the currency.
The Governor of the BoG, Dr Henry Kofi Wampah, said at a Monetary Policy Committee (MPC) news conference in Accra that the increase was also to gradually curb inflation, while maintaining growth, as the macro-economic position had deteriorated in a country that saw years of high growth through the export of gold, oil and cocoa.
"The committee concluded that risks to both inflation and growth are elevated but tilted more to inflation.
"It was, therefore, noted that moderate tightening, complemented by sustained fiscal consolidation efforts, could rein in inflation expectations," he said.
Ghana's consumer inflation rose to 16.8 per cent in April, up from 16.6 per cent the previous month.
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Interest rates
The surge in the policy rate means people who have contracted loans which do not have fixed interest may experience an increase in interest of the loans.
The policy rate, which is the rate at which the central bank lends to commercial banks and is also used by banks to calculate their base rates, was at 21 per cent prior to the increment.
A weaker currency had boosted inflation to 16.8 per cent in April. The government’s year-end inflation target is 11.5 per cent.
Risk to inflation
The currency’s slide “is one of the factors that the committee considered”, Dr Wampah said.
“Risks to both inflation and growth are elevated, but tilted more to inflation. It was, therefore, noted that a further moderate tightening, complemented with sustained fiscal consolidation efforts, could rein in inflation and inflation expectations,” he explained.
Some investors, including the nation’s largest private fund manager, had predicted the bank would lower interest rates later this year as austerity measures agreed with the IMF would help stabilise the currency and curb inflation.
GDP growth is expected to slow to 3.9 per cent this year (from four per cent last year) because of recurring power outages and falling revenue from the nation’s biggest exports, cocoa and gold.
The government is targeting a budget deficit of 7.5 per cent of GDP this year, down from 9.3 per cent last year.