Ghana’s central bank kept its benchmark interest rate unchanged, while raising the cash reserve requirement for lenders to help curb inflation and bolster the worst-performing African currency this year.
The Monetary Policy Committee left the rate at 18 percent, Governor Kofi Wampah told reporters today in the capital, Accra. That was in line with the forecasts of five out of nine economists surveyed by Bloomberg. The rest had predicted an increase of 1 to 2 percentage points, following a 200 basis-point raise at an emergency meeting in February.
“The committee is of the view that the impulses of the recent monetary policy hike are still working through the system,” Wampah said. “The reserve requirement is meant to achieve quicker results. It’s not a tool we use often.”
Ghana is struggling to curb inflation that’s surged to a four-year high, fueled by a currency that lost a fifth of its value against the dollar last year and has already plunged 12 percent since the beginning of January.
“The risk to inflation remains high,” Wampah said. “We did discuss raising the rate, it was a very tough decision.”
The rate increase on Feb. 6, which came a day after introducing currency controls, didn’t stop Fitch Ratings from lowering Ghana’s debt outlook last week to negative from stable, five months after downgrading the rating by one level to B, the fifth-highest non-investment grade.
Consumer prices rose 14 percent in February from a year earlier. The inflation rate probably won’t drop into the central bank’s target band of 9.5 percent, plus or minus two percentage points, until the end of the first half of 2015, Wampah said.
Policy makers today raised the amount of cash as a proportion of deposits that commercial lenders must hold in reserves to 11 percent from 9 percent to help curb liquidity and ease inflation.
The move will probably have more of an immediate effect on the cedi than raising the policy rate, Yvonne Mhango, an economist at Renaissance Capital in Johannesburg, said by phone.
“They have still tightened but have opted not to use the policy rate,” she said. The new requirement “withdraws local currency from the market. In reducing the supply of the cedi it does help improve the value of the cedi.”
The cedi fell 0.4 percent to 2.7 against the dollar at 2:01 p.m. in Accra.
Growth in West Africa’s biggest economy after Nigeria’s is expected to slow to 4.8 percent this year from 5.5 percent in 2013, according to the International Monetary Fund.