Ghana Central Bank Ready to Act Should Cedi Threaten Inflation

Ghana’s central bank said it is ready to intervene to defend the cedi, which has weakened 3.1 percent against the dollar this year, should it breach an internal target that threatens to stoke inflation.

“We have a certain level that is internal to us,” Deputy Governor Millison Narh said in an interview at a conference hosted by Bloomberg LP in Johannesburg today, declining to give details. “We are watching and we are taking appropriate measures. When we get to a certain level, it will hurt inflation and that is where we will come in.”

The currency of the world’s second-largest cocoa producer slid 20 percent last year, its 19th straight annual decline, according to data from when Bloomberg began tracking the currency, as the government battles to rein in its budget and current-account deficits following a surge in imports to feed faster economic growth. Inflation quickened to 13.5 percent in December, the highest of 2013, after the figures were rebased.

“We are concerned about inflation to the extent that the transmission will be coming from the foreign-exchange channel,” Narh said. “We know inflation has been largely driven by removal of subsidies on petroleum and utility tariffs by government. Those are structural and you will naturally not respond to that.”

The Bank of Ghana boosted reserves by about $1 billion in the past two years in case it needs to battle sudden outflows from foreign investors. “There is a limit” to the central bank’s resources if it had to use reserves to intervene in currency markets, Narh said. The bank can use cocoa receipts to help with the “redistribution of liquidity rather than direct intervention,” he said.

Bond Timing

The regulator needs to strike a balance between having a currency that allows exporters to be competitive against keeping price gains in check, Narh said. Movements in the currency should also not be “that dramatic,” he said.

Ghana’s Finance Ministry may also have to reconsider the timing of the sale of Eurobonds because of increased volatility in emerging markets, Narh said. Deputy Finance Minister George Ricketts-Hagan said last month that Ghana may sell its third international bond in April, depending on how markets react to the Federal Reserve’s tapering of stimulus.

“If now markets seem to be rebalancing then of course its important that you wait and see for it settle,” Narh said. “It’s not prudent to take hasty decisions, especially when you have other options to deal with when raising capital.”

To contact the reporters on this story: Vernon Wessels in Johannesburg at; Andres R. Martinez in Accra at

To contact the editor responsible for this story: Vernon Wessels at

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