Ghana lifts rate to 18% on cedi slump

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HenryWampahGhana Reuters. Ghana's Central Bank Governor Henry Wampah.

Accra - Ghana’s central bank increased its benchmark rate by 2 percentage points, a day after it announced curbs on foreign-currency trading to halt a slide in the cedi.

The key lending rate was raised to 18 percent, Governor Kofi Wampah told reporters today in Accra, the capital.

That’s the second-highest of 62 nations monitored by Bloomberg after Belarus.

All seven economists predicted policy makers will lift the rate, with forecasts ranging from 17 percent to 18 percent.

The Bank of Ghana moved its rate-setting meeting two weeks ahead of schedule after the cedi slumped to a record low against the dollar.

Yesterday, the bank stepped in to stabilise the currency by setting limits on foreign-exchange transactions and ordering all local transactions to be done in the cedi.

“Inflation expectations have heightened,” Wampah said.

“The uncertainties in the outlook and weakened domestic fundamentals have underscored the need for continued tight fiscal and monetary policy and measures that will reduce the country’s vulnerability to shocks and anchor inflation expectations.”

The cedi pared some of its losses after the rate decision, dropping 1.8 percent to 2.4609 against the dollar as of 12:47 p.m. in Accra, after earlier dropping to a record low of 2.51.

The currency is down 3.5 percent so far this year, the worst performer in Africa after South Africa’s rand and Botswana’s pula.

Inflation Pressure

Ghana joined emerging markets from India to South Africa that have raised borrowing costs this year as weakening currencies threaten to stoke inflation and damp economic growth.

Inflation in the world’s second-biggest cocoa producer accelerated to 13.5 percent in December, near a four-year high.

The central bank’s inflation target is 9.5 percent, with a margin of 2 percentage points either side, Wampah said.

Without the tightening measures, the inflation rate will exceed that range, he said.

The cedi has come under pressure since last year as the government struggled to rein in the budget deficit and the current-account shortfall, the broadest measure of trade in goods and services, ballooned.

Fitch Ratings downgraded Ghana’s debt by one level to B in October, while Standard & Poor’s and Moody’s Investors Service in December cut their outlook on the nation’s credit rating to negative.

‘Slight Positive’

“This is only a slight positive for the cedi,” Yvonne Mhango, an economist at Renaissance Capital in Johannesburg, said by phone.

“It’s a positive that they’re doing something on the monetary side, but given the current environment, increased risk aversion and the fact those two deficits remain especially large, we don’t expect” the bank’s measures to stem the currency’s slide.

The fiscal shortfall reached 10.2 percent of gross domestic product last year, missing the government’s goal of 9 percent.

The current-account deficit was 12.3 percent in 2013, Wampah said today.

The government ended subsidies for fuel and raised tariffs for water and electricity last year to help curb the budget deficit, adding to pressure on inflation. - Bloomberg News


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