Business
Bank of Ghana raises interest rates in bid to stabilze the Cedi
Ghana’s central bank has increased interest rates by a percentage point to 25 percent to arrest the slide of the cedi against major currencies.
Bank of Ghana governor Kofi Wampah said the decision to review the interest rates was made at a meeting on monetary policy late last week.
“Inflation pressures have persisted due to uncertainties in the foreign exchange market, with implications for petroleum pricing and other tradable goods and services,” Wampah told journalists in the capital, Accra.
“The decision of the committee to increase the policy rate is consistent with the bank’s forecasts, which requires further tightening in order to bring inflation back within the target band by the end of 2016,” Wampah said. “The committee will continue to monitor developments and take appropriate action if necessary.”
Ghana’s economy continues to suffer from low commodity prices for mainly gold and oil and power shortages. The country’s foreign gross reserves fell from US$1.1 billion to US$3.2 billion in June, Wampah said.
According to Wampah, Ghana has had to slash its growth forecast for 2015 to 3.5 percent from 3.9 percent in July. For the first seven months of 2015, export receipts slumped to US$6.3 billion from US$8.1 billion during the same period last year.
Imports also dropped to US$7.8 billion, from US$8.4 billion in the corresponding period in 2014 leading to a worsening trade deficit. However, the Bank of Ghana said the current account deficit improved as a result of favorable movements in the services and income accounts.
Gross foreign assets as at July ending 2015 stood at US$4.4 billion, the Bank of Ghana said, enough to cover 2.8 months of imports of goods and services as compared with US$5.5 billion in December 2014, which covered over 3 months.
Ghana’s inflation rose from 16.9 percent in May before quickening to 17.9 percent in July, mainly reflecting the upward adjustments in petroleum and transport prices. But some moderation occurred in August with inflation declining to 17.3 percent, which remained higher than the June figure of 17.1 percent.
“Core inflation, excluding energy and utilities, however, continued to rise, suggesting persistent underlying inflation pressures,” the Bank of Ghana said. The current forecasts suggest that attainment of the medium term inflation target by the end of 2016 would require further tightening of the monetary policy.
Plans by the country’s utility companies to raise tariffs have raised fears inflation would continue to rise.
Wampah said the Bank of Ghana was determined to keep the cedi stable in order to arrest inflation. “The monetary policy committee is determined to prevent first round effects of the likely increases in prices and the higher cedi liquidity during the fourth quarter from being entrenched into elevated inflation expectations,” he added.
The volatility in the exchange rate has continued and on monthly basis, the Ghana cedi appreciated against the US dollar. In July the cedi was weaker by 25.5 percent, and depreciated, in August, by 14.8 percent.
The Bank of Ghana has given assurance that in the coming months, the currency volatility is expected to moderate due to its tight monetary policy stance, anticipated inflows from the Eurobond issue and the syndicated pre-export finance facility for cocoa.
According to the Bank of Ghana, business sentiment has softened while consumer confidence, although up, remained subdued, the bank is optimistic growth would rebound in the medium term with anticipation in increased production of oil and gas.
The bank’s fiscal consolidation continued in the first 7 months of 2015 as revenues exceeded target while expenditures remained within targets. The central bank, however, expressed concern about the adverse effects of high volatility in financial markets, uncertainty over the timing and impact of expected tightening in the United States’ monetary policy and declining commodity prices on the balance of payments.
Meanwhile, the government is set to start a roadshow for a US$1.5 billion Eurobond on September 22.
(1 US dollar converts to 4.03 Cedis)
Source: The Africa Report