Ghana surprises markets with policy rate hike to 22 pct

The Bank of Ghana unexpectedly raised its main policy rate by 100 basis points to 22.0 percent on Wednesday to offset the risk of inflation.

Governor Henry Kofi Wampah has raised rates gradually over two years in a bid to curb inflation while maintaining growth as the macro-economic position has deteriorated in a country that saw years of high growth through exports of gold, oil and cocoa.

Ghana began an International Monetary Fund aid program in April to restore balance to an economy hit by a high deficit, a debt-to-GDP level at 65.3 percent at the end of March and a currency Wampah said fell 17.2 percent in the year to May 8.

"The committee concluded that risks to both inflation and growth are elevated but tilted more to inflation," Wampah told a news conference, referring to the Monetary Policy Committee.

"It was therefore noted that moderate tightening complemented with sustained fiscal consolidation efforts could rein-in inflation expectations," he said.

Ghana's consumer inflation rose to 16.8 percent in April, up from 16.6 percent the previous month.

The decision would help assuage doubts about Bank credibility on fighting inflation, said Razia Khan, chief of Africa research at Standard Chartered bank.

"We expect this (hike) will help to stabilise the currency in the near term .... However, it does not change our medium-term view, based on expectations of a still-wide current account deficit, that the cedi will continue to weaken," she said.

The decision may have been motivated by an IMF projection that Ghana's inflation will only fall to 12 percent by the end of 2015, said Cobus de Hart of NKC Independent Economists in South Africa.

"The higher interest rate should also serve to make the country less vulnerable to the adverse implications that U.S. monetary policy normalisation may hold later in the year," he said.

Good fiscal consolidation in the first quarter of the year has reduced the amount of monetary tightening the Bank needed to do, Wampah said.

The IMF funds will help shore up the currency and donors are expected to release around $500 million in support in the third quarter, he said.

Source: Reuters.com

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