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Ghana ramps up interest rate again as inflation climbs

By Cooper Inveen

Ghana’s central bank on Monday raised its main interest rate (GHCBIR=ECI) by 200 basis points to 19% to curb inflationary pressures and promote macroeconomic stability, Governor Ernest Addison said.

In March the Bank of Ghana raised its policy rate by 250 basis points to 17% – the largest hike in its history – to stem runaway inflation in one of West Africa’s more prosperous nations as the government cut spending to reduce the budget deficit and save a sliding local currency. read more

But in April the consumer inflation rate in the gold, oil and cocoa producer hit an 18-year high of 23.6%.

Addison said the total public debt stood at around 78% of gross domestic product.

Capital outflows have entirely offset a $1.3 billion trade surplus gained from a 61% jump in crude oil export revenues in the first quarter.

Addison said that had created an overall balance of payments deficit of $934.5 million in the first quarter compared with $429.9 million in the same period last year.

“The committee took the view that it needed to decisively address the current inflationary pressures to re-anchor expectations and help foster macroeconomic stability,” Addison told a press briefing in the capital Accra.

The rapid depreciation of Ghana’s cedi has slowed but the currency has still lost over a quarter of its value since the year began.

Although the jump in April inflation was mainly driven by transport costs, prices rose for more than 96% of surveyed items, meaning most Ghanaians are feeling the pinch.

Central bank forecasts show a “prolonged horizon” for inflation to return to its target band, Addison said.

Finance Minister Ken Ofori-Atta had said another hike would be a “knee-jerk reaction” to mostly imported inflation, making it hard for the government to service its domestic debt. read more

Ofori-Atta has committed to managing Ghana’s debt without help from the International Monetary Fund.

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