GHANA SURPRISES ANALYSTS BY RAISING LENDING RATE TO 29.5PC DESPITE SLOWING INFLATION
ACCRA - Ghana’s central bank on Monday surprised analysts by raising its main interest rate to 29.5 percent, a sign the monetary committee does not yet see the country’s economic situation stabilising despite two consecutive months of slowing inflation.
The cocoa, gold and oil-producing nation, one of West Africa’s largest economies, is facing its worst economic crisis in a generation and is in the process of restructuring its debt to secure a $3 billion loan from the International Monetary Fund.
The central bank has hiked its main lending rate by 12.5 percentage points in the past year, from 17 percent in March 2022, in an effort to contain spiralling price rises, which reached a more than two-decade high of 54.1 percent in December.
“To place the economy firmly on the path of stability and reinforce the basis for disinflation, it is important that monetary policy stance is tuned firmer to re-anchor inflation expectations toward the medium target,” Bank of Ghana Governor Ernest Addison told a news conference.
Ghana’s consumer inflation slowed to 52.8 percent year-onyear in February, from 53.6 percent in January. Addison said on Monday he expected inflation to reach 29 percent by the end of the year
Ghana secured a staff-level agreement through the International Monetary Fund in December for a $3 billion bailout loan, but must first ask bilateral lenders to provide financing assurances on existing debts before the IMF board can sign off on the programme.
Addison said on Monday that negotiations with those lenders were “proceeding well,” and that the Bank had finalised a zero financing agreement with the finance ministry for the 2023 budget, which was a prior action required by the IMF for programme support. Addison also announced that commercial banks’ required reserve ratios would increase to 14 percent from 12 percent starting April 13, in the hope of en
suring banks maintain adequate liquidity in the aftermath of a domestic debt restructuring the country completed last month.
Some analysts were surprised by the rate hike. “Given that the authorities had rejected higher bids at recent bond auctions, we expected the Bank of Ghana to remain on hold,” said Razia Khan, Standard Chartered’s Chief Economist for Africa and Middle East.