Ghana Central Bank Unexpectedly Raises Benchmark Rate to 26%

  • Inflation remains above Bank of Ghana's target of 6% to 10%
  • Governor says bank may lower rate once CPI expectations ease

Ghana’s central bank unexpectedly raised its benchmark interest rate by 1 percentage point to help rein in inflation sparked by the currency’s slump.

The Bank of Ghana increased the policy rate for a third time this year to 26 percent, Governor Kofi Wampah told reporters on Monday in the capital, Accra. Two of the nine economists surveyed by Bloomberg predicted a 100 basis-point raise, while the rest forecast it would stay unchanged.

“The current level of inflation and the latest inflation expectations remain far above the medium-term target band” of 6 percent to 10 percent, Wampah said. “There are imminent upside risks to the inflation outlook such as worsening external financial conditions and the planned utility tariff adjustments.”

Authorities in the West African nation are trying to get the economy back on track after the currency plunged 26 percent against the dollar in the first half of the year, inflation soared and rising public debt prompted credit-rating downgrades. The government estimates inflation, which was unchanged at 17.4 percent in October, will ease to 10.1 percent by the end of 2016.

IMF Loan

“Earlier pressure on the cedi, as well as the need for significant utility price adjustments will keep inflation pressured, in our view,” Standard Chartered Plc’s Razia Khan, who correctly predicted today’s decision, said in a note to clients. “Raising interest rates now was necessary in order to protect the credibility of monetary policy.”

The government has pledged to curb its fiscal deficit as part of an agreement to receive almost $1 billion in loans from the International Monetary Fund, helping to curb price pressures.

“The committee will continue to monitor developments in the economy and take appropriate action if necessary, including the possibility of lowering the policy rate once inflation expectations are well-anchored,” Wampah said.

The cedi gained 0.5 percent to 3.8025 against the dollar as of 4:15 p.m. in Accra, taking its decline this year to 16 percent.

Mozambique’s central bank also raised its benchmark interest rate on Monday, increasing it for a second month to 8.25 percent from 7.75 percent. Tighter monetary policy was needed to ensure economic stability and protect against rising inflation, the bank said in a statement on its website. The currency, the metical, has dropped 28 percent against the dollar this year, while foreign reserves have plunged 46 percent to $2.03 billion.

Authorities in the southern African nation turned to the IMF for emergency aid of $286 million last month. The Washington-based lender said in a statement on Oct. 30 that more policy tightening will be needed by the central bank.

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