Ghana Holds Benchmark Rate at 15% as Budget Deficit Soars

Ghana’s central bank left its benchmark interest rate unchanged for a third consecutive meeting, concerned that higher government spending will add to pressure on inflation.

The Bank of Ghana kept the policy rate at 15 percent, acting Governor Kofi Wampah told reporters in Accra, the capital, today. That was in line with the forecasts of four out of seven economists surveyed by Bloomberg. The rest predicted a cut of between a half and one percentage point.

Ghana posted a budget deficit of 12.1 percent of gross domestic product last year, almost double the target of 6.7 percent, Wampah said. Expenditure rose as West Africa’s second-biggest economy held an election in December, which was won by President John Dramani Mahama.

“The provisional year-end fiscal numbers present the economy with a major challenge going forward,” Wampah said. “The budget outturn clearly showed that there would be a need for significant fiscal consolidation in 2013.”

Inflation was unchanged at 8.8 percent in January, after slowing in the previous month, the Ghana Statistical Service said today.

The central bank increased its key rate by 2.5 percentage points last year and boosted Treasury-bill sales to help stabilize the cedi, which fell 14 percent against the dollar in 2012, making it Africa’s second-worst performer. The currency has gained 0.2 percent so far this year and was at 1.9050 a dollar as of 2:42 p.m. in Accra.

Fuel Costs

The government may scrap fuel subsidies, adding to pressure on inflation this year. The cost of the caps is expected to climb to 2.4 billion cedis ($1.3 billion) this year from about 1 billion cedis in 2012, according to the National Petroleum Authority.

Inflation will remain “broadly stable” to end the year within a range of 7 percent to 11 percent, Wampah said.

Ghana is the world’s second-largest cocoa producer and the continent’s No. 2 gold miner. The economy grew at its slowest pace in almost six years in the third quarter, expanding 1.7 percent compared with 3.2 percent in the previous three months, the statistics office said on Jan. 9.

Cocoa exports were worth $2.8 billion last year while gold exports amounted to $5.6 billion, Wampah said.

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