Bank of Ghana May Pause Rate-Tightening Cycle as Cedi Surges

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Ghana’s central bank will probably keep its benchmark interest rate unchanged on Wednesday as the currency recouped almost all of its losses this year, giving policy makers some breathing space.

The Monetary Policy Committee, led by Governor Kofi Wampah, is set to leave the rate at 22 percent, according to all seven economists surveyed by Bloomberg. The decision will be announced at a press conference scheduled for 11 a.m. local time in the capital, Accra.

The cedi has surged 25 percent against the dollar since the beginning of the month, allowing the MPC to pause after raising borrowing costs by 100 basis points in a surprise move in May. The International Monetary Fund gave Ghana a positive review of its budget plans on June 30, fueling the currency’s rally after a 26 percent slump against the dollar in the first half of the year.

“The glowing IMF review suggests the Bank of Ghana is not under pressure from the fund to tighten up policy any more,” Gareth Brickman, an analyst at ETM Analytics in Johannesburg, said in an e-mailed response to questions. “Inflation expectations are also likely to decline in the face of the cedi’s sharp appreciation.”

The government has started cutting spending on salaries for state workers and is sticking to fiscal targets set by the IMF as part of an almost $1 billion loan to Ghana, the Washington-based lender said in its three-month review of the funding program. The budget deficit may reach 7 percent of gross domestic product this year, lower than a previous goal of 7.5 percent, it said.

Inflation Outlook

“Ongoing fiscal consolidation will also help with tightening monetary policy,” Celeste Fauconnier, an Africa analyst at FirstRand Ltd.’s Rand Merchant Bank, said by phone from Johannesburg. “A stable currency will help inflation over the next few months.”

Consumer prices in West Africa’s second-largest economy rose 16.9 percent in May from a year ago, little changed from 16.8 percent in April. The government’s year-end target is 11.5 percent.

Ghana is among at least five African nations to tighten monetary policy this year to bolster their currencies. Uganda increased its benchmark rate for a second time this year, raising it by 150 basis points to 14.5 percent on July 13.

The cedi is set to benefit from an increase in foreign inflows in the second half of the year. Ghana will receive about $500 million in donor funds this year, according to the IMF, while the government is preparing to sell as much as $1.5 billion in Eurobonds by the end of September.

The currency rose 2.9 percent to 3.5 against the dollar as of 7:54 a.m. in Accra.