Ghana’s Central Bank Keeps Benchmark Interest Rate at 26%

  • Inflation accelerated to 16.9% in August from 16.7% in July
  • Ghana sold $750 million Eurobond at 9.25% yield on Sept. 8

Ghana’s central bank kept its benchmark interest rate unchanged for a fifth consecutive meeting after inflation accelerated in August.

The Bank of Ghana held the rate at 26 percent, Governor Abdul Nashiru Issahaku told reporters Monday in the capital, Accra. That was in line with the forecast of six of the eight economists in a Bloomberg survey. One said the rate would be cut by 100 basis points and another forecast a 200 basis-point reduction.

Inflation accelerated to 16.9 percent in August from 16.7 percent the previous month. While the central bank targets inflation at between 6 percent and 10 percent, price growth has not been in this band for more than three and a half years. The Ghanaian economy expanded 3.9 percent in 2015, the slowest pace in 15 years, according to International Monetary Fund data. The Finance Ministry said in July growth will probably accelerate to between 4.1 percent and 4.3 percent this year as new oil projects start contributing to output.

“Inflation expectations by businesses, consumers and the financial sector also eased on the back of continued stability in the local currency,” Issahaku said. While price growth should slow to within target in the second quarter of next year “upside risks to the inflation outlook are the unanticipated shocks” like fuel and utility prices and their second-round effects, he said.

West Africa’s second-largest economy sold a $750 million Eurobond at a yield of 9.25 percent on Sept. 8 in an auction that was more than four times oversubscribed. The government of President John Dramani Mahama, who will run for a second term in office in December, last year agreed to almost $1 billion in loans from the IMF to help rein in the budget deficit and arrest declines in the cedi.

There’s a risk that spending could increase ahead of the election and fuel inflation, Courage Kingsley Martey, an economist at Accra-based Databank Group Ltd., said by phone. The government last week pledged to increase public-sector salaries by 12.5 percent from January.

“The bank maintained the rate because of inflation and currency risk,” he said. It “could start easing policy from January.”

The cedi weakened 0.6 percent to 3.99 per dollar by 1:30 p.m. in Accra.

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