BoG maintains policy rate
The Bank of Ghana (BoG) has maintained its key benchmark interest rate at 26 per cent due to a slowdown in inflation as a result of the bank’s tight monetary policy stance.
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This is expected to bring down the double-digit inflation, although a fragile currency still poses a threat to stable prices.
The Governor of the BoG, Dr Henry Kofi Wampah, said at a Monetary Policy Committee (MPC) news conference in Accra that inflation stood at 18.5 per cent in February but would peak in the first quarter of 2016 before beginning to fall.
Ghana’s seventh aid programme with the International Monetary Fund (IMF) since 1967 is proving less helpful than its 2009 bailout, when interest rates fell.
This time around, Dr Wampah has had to counter inflation by raising rates to 26 per cent last year when the IMF approved almost $1 billion of emergency loans.
High cost of borrowing
With key borrowing costs at their highest level since July 2003, yields on benchmark treasury bills are not benefiting from IMF assistance, as the Washington-based lender cautions policy makers to act more aggressively if inflation does not ease.
Ghana is following a three-year aid programme with the IMF to restore fiscal balance to an economy dogged by high fiscal deficits and a distressing public debt of $25.6 billion, with consumer inflation consistently above government target.
The economy is expected to pick up this year, even as the government abides by IMF-set spending limits, and Dr Wampah said the bank had begun its zero financing of the budget deficit limit placed on it under the aid deal.
“The committee views the risk to inflation and growth outlook as balanced, hence the need to maintain the current monetary policy stance which, together with fiscal consolidation, would help bring inflation further down," he said.
Tight elections
Ghana, one of Africa's most stable democracies, will hold presidential and parliamentary elections in November this year.
The presidential election is expected to be a tight race between President John Mahama and Nana Addo Dankwa Akufo-Addo of the opposition New Patriotic Party (NPP), partly as a result of economic concerns.
Although Monday's rate hold was generally expected, analysts say the central bank would have to adopt other monetary conditions to cap inflation and stabilise the local currency.
Ghana was until recently considered one of Africa's strongest economies, but growth has slowed sharply, in part because of a fall in global commodity prices which has hit Ghana’s key exports of cocoa, oil and gold.
Foreign exchange market
But Dr Wampah was confident that stability in the foreign exchange market, which has fallen around one per cent this year, was evidence that the policy of fiscal consolidation was taking hold.
The local currency, the cedi, weakened from around GH¢1.93 to the dollar in March 2013 to around GH¢4.4 to the dollar in June last year in one sign of the fiscal crisis.
It was GH¢3.85 to the dollar as of yesterday.
Ghana's budget deficit fell to 7.1 per cent of GDP at the end of 2015, from 10.2 per cent a year earlier, which is a faster rate of decline than the government had initially projected.
But debt as a percentage of GDP stands at 72.9 per cent, significantly above the average for Africa.
Gross international reserves stood at $5.4 billion as of February, representing 3.1 months of import cover, according to Bank of Ghana figures.