Ghana Keeps Benchmark Interest Rate Unchanged as Cedi Climbs

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Ghana’s central bank left its benchmark interest rate unchanged as the currency’s 25 percent surge against the dollar this month helps to ease pressure on inflation.

The Monetary Policy Committee left the rate at 22 percent, Governor Kofi Wampah told reporters on Wednesday in the capital, Accra, matching the forecasts of all seven economists surveyed by Bloomberg.

The cedi has recouped almost all of its losses this year, giving Wampah room to pause the interest-rate tightening cycle and support an economy that’s set to expand at its slowest pace in more than two decades. While inflation accelerated to 17.1 percent in June from 16.9 percent in the previous month, the outlook has improved, Wampah said.

“Though inflation and inflation expectations were still elevated, the pressures in the outlook for the medium term were waning,” Wampah said. “This is a result of the tight monetary policy stance, continuing fiscal consolidation and the recent recovery of the cedi.”

Inflation will probably move into the central bank’s target range of 6 percent to 10 percent in the fourth quarter of next year, compared with a previous estimate of the third quarter of 2017.

The International Monetary Fund gave a positive review of Ghana’s budget plans on June 30, fueling the currency’s rally. Wampah said the fiscal deficit in the first four months of the year was 2 percent of gross domestic product, compared with an IMF target of 2.6 percent.

Foreign Inflows

“Given the overall tighter stance of policy stemming from compliance with fiscal and monetary measures required by the IMF program, the Bank of Ghana’s expectation of medium-term inflation has also improved,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said in a note to clients.

The cedi fell 2.1 percent to 3.47 against the dollar as of 12 p.m. in Accra. The currency is set to benefit from an increase in foreign inflows in the second half of the year, with the IMF estimating about $500 million in donor funds and the government preparing to sell as much as $1.5 billion in Eurobonds by the end of September.

Wampah announced additional measures to “streamline monetary operations,” including merging the monetary policy rate with the reverse repo rate within 30 days. The bank will introduce a seven-day reverse repo instrument shortly after that to improve liquidity management of banks, he said.

To boost liquidity in the foreign-exchange market, the bank has agreed with the Finance Ministry to allow foreigners to invest in two-year bonds, Wampah said.