Ghana’s central bank has kept its benchmark interest rate unchanged after the government sold $1 billion in Eurobonds and began talks with the International Monetary Fund, helping to revive confidence in the economy.
The Monetary Policy Committee maintained the rate at a decade-high of 19 percent, Governor Kofi Wampah told reporters in Accra that matched the forecasts of eight of 10 economists surveyed by Bloomberg. Two analysts predicted an increase of 50 basis points to 100 basis points.
Ghana is struggling to contain an economic crisis that’s pushed inflation to 16 percent in August and caused the currency to lose a third of its value against the dollar this year, the worst-performing currency in sub-Saharan Africa. The Cedi has gained 9.2 percent in the past month after the government said it will seek support from the IMF.
Head of Africa economic research at Standard Chartered Plc in London, Razia Khan said in an e-mail that the key test will be whether the recent performance of the Ghana cedi can be sustained. However they expected inflation to continue to rise as the impact of earlier currency weakness is still felt and the bank may raise the benchmark rate by 100 basis points in November, she said.
He said proceeds from the Eurobond sale this month may also help to bolster foreign-currency reserves, which stood at $4.2 billion at the end of August, covering 2.4 months of import needs.
Wampah said. The bank has a target of four months of import coverage. The cedi fell 0.4 percent yesterday to 3.6042 against the dollar while yields on the Eurobond sold earlier fell two basis points, or 0.02 percentage point, to 8.11 percent.
The Bank of Ghana has increased the key rate by three percentage points since January to halt inflation and support the economy. Inflation will probably peak in the “near term” remaining slightly above the upper band of the central bank’s revised target for 2014 of 13 percent, plus or minus two percentage points.
Concern that the government’s budget gap will exceed 10 percent of gross domestic product for a third consecutive year prompted Moody’s Investors Service to lower Ghana’s credit rating in June to B2, five levels below investment grade.
The budget deficit in the first seven months of the year was 5.3 percent of GDP, compared with a target of 5.1 percent, Wampah said.
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