Ghana to hold rate to spur GDP.

 

Ghana’s central bank will probably keep its benchmark interest rate unchanged today to help support growth in the West African economy after tightening monetary policy at an emergency meeting two months ago.

Governor Kofi Wampah will maintain the key rate at 18 percent, according to five of the nine economists surveyed by Bloomberg. 

The rest predicted an increase of between one and two percentage points.

The decision will be announced at a press conference that’s due to begin at 11 a.m. in the capital, Accra.

Ghana is struggling to curb inflation that’s surged to a four-year high, fuelled by a currency that lost a fifth of its value against the dollar last year.

Policy makers raised the key rate by 200 basis points on February 6, a day after introducing limits on the use of dollars in the economy.

That didn’t stop Fitch Ratings from lowering Ghana’s debt outlook last week to negative from stable, five months after downgrading the rating by one level to B. 

The interest rate will be kept unchanged to “create a balance between currency stability and domestic growth,” Gaimin Nonyane, an economist at Ecobank Group in London, said in an e-mailed response to questions.

“While there are strong reasons for further tightening, a hike in the policy rate will have negative implications for both gross domestic product growth and the government’s debt-servicing costs.”

Growth in West Africa’s largest economy after Nigeria is projected to slow to 4.8 percent this year from 5.5 percent in 2013, according to the International Monetary Fund.

 

Sentiment Slumps

 

Inflation began accelerating last year after the government scrapped subsidies on gasoline and diesel and raised water and electricity prices.

A weaker cedi has boosted import costs, pushing the inflation rate to 14 percent in February.

Investor sentiment toward Ghana has slumped since last year as the government struggled to rein in a fiscal deficit that reached 10.9 percent of GDP in 2013. 

The government’s policy credibility is at risk because of failure to meet fiscal targets, Fitch said on March 28.

Standard & Poor’s and Moody’s Investors Service lowered the nation’s debt outlook to negative in December.

The cedi has dropped 12 perceznt against the dollar this year and was trading as low as 2.72 in Accra yesterday.

The yield on Ghana’s Eurobonds due August 2023 has climbed 74 basis points, or 0.74 percentage point, to 9.23 percent since the beginning of the year. 

“Although the rapid depreciation of the Ghana cedi remains a concern, as does its likely feed-through into inflation, there is little sign at present of demand overheating,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said in an e-mail.

“Given investor concerns about Ghana’s fiscal outlook, it is doubtful that raising interest rates further will do much to attract new inflows.” - Bloomberg News 

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