Ghana may cut rates

Ghana's President Nana Akufo-Addo speaks during his swearing-in ceremony at Independence Square in Accra

Ghana's President Nana Akufo-Addo speaks during his swearing-in ceremony at Independence Square in Accra

Published Jan 23, 2017

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Accra - Ghana’s central bank is likely to cut its

benchmark interest rate for a second straight meeting after consumer prices

rose at the slowest pace since July 2014.

Governor Abdul Nashiru Issahaku has enough room to reduce

the West African nation’s main rate by as much as 150 basis points from 25.5

percent, according to  John Ashbourne, an economist with Capital Economics

Ltd. The Monetary Policy Committee announces its decision on Monday in the

capital, Accra. Four of the six economists surveyed by Bloomberg said they

expect the rate to be reduced.

“The bank began a cutting cycle in November, and we think

that policy makers will continue with another 500 basis points” of

reductions in 2017, Ashbourne said by e-mail. “Inflation is easing as the

effects of the 2014 fall in the cedi fades. We see the Bank of Ghana cutting to

20 percent by the end of the year.”

The bank reduced the rate for the first time since May

2011 in November. While inflation has been outside the central bank’s

target band of 6 percent to 10 percent since at least January 2013, growth in

consumer prices decelerated to 15.4 percent in December, slowing for a third

straight month. The economy probably expanded 4.1 percent in 2016,

according to forecasts from the government, which is now led by President Nana

Akufo-Addo after he won an election last month.

Cedi Performance

Ghana’s cedi had strengthened 5.6 percent since reaching

a record-low 4.49 against the dollar in June 2015. It depreciated 26 percent in

2014, the biggest annual drop since 2000.

The country probably missed its budget-deficit target for

2016 because of lower-than-expected oil output and higher spending on elections

and energy-industry debts, former Finance Minister Seth Terkper said on December

21.

West Africa’s second-biggest economy will miss its

fiscal-shortfall projection of 5.3 percent of gross domestic product by as much

as to 2 percentage points, Terkper said. Ghana’s deficit was 6.3 percent of GDP

in 2015.

Cocoa and crude are the nation’s main commodity exports,

with Ghana being the world’s largest producer of the chocolate ingredient after

neighboring Ivory Coast.

“Given a new government, concerns about growth, and

disinflation, there is a strong possibility of a rate cut at today’s

central-bank meeting,” analysts at FirstRand’s Johannesburg-based Rand Merchant

Bank said in an e-mailed note. “Our core view is for rate cuts to continue

throughout 2017 and even stretch below 20 percent.”

BLOOMBERG

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