Ghana’s central bank paused its steepest phase of monetary tightening, after clinching a $3 billion lifeboat from the International Monetary Fund, as it expects the downward trend in inflation to continue.
The monetary policy committee maintained the policy rate at 29.5%, Governor Ernest Addison told reporters Monday in the capital, Accra. Eight out of 10 economists in a Bloomberg survey correctly predicted the decision.
The cedi was little changed after the announcement to trade at 10.7397 against the dollar at 12:40 p.m. in Accra. The nation’s dollar bond maturing in 2032 fell 0.3 cents to 38 cents on the dollar.
Tight monetary policy, relative stability in the local currency and following conditions attached to the IMF deal will allow for a faster easing in inflation toward the target band, the governor said.
The annual inflation rate which hit 54.1% in December, a level last seen in the early 2000s, ebbed for a fourth straight month in April to 41.2%. It is now four times the ceiling of the central bank target range of 6% to 10%.
The MPC has increased the key interest rate by 16 percentage points since November 2021 to contain inflation and steady the currency’s 43% decline against the dollar that was stoked by the nation’s worsening financial conditions and ballooning debt.
The country suspended payments on most of its external debt in December. The government plans to sign a memorandum of understanding on restructuring its loans with official creditors by June or July, the Finance Ministry said last month.
The loan from the IMF will help replenish the nation’s foreign-exchange reserves, which have dropped almost 50% from a peak in August 2021 as the central bank used them to defend the cedi.
Goldman Sachs Group Inc. economists Bojosi Morule and Andrew Matheny said in a research note ahead of the release that the MPC may start to cut rates later this year.
“We expect the largest reduction in inflation to occur in late-2023 due to the base effects from last year’s FX shocks,” they said. “As a result, we expect the headline figure to dip below 25% year-on-year in the third quarter, paving the way for rate cuts to begin in quarter four, barring further shocks.”
The MPC is still targeting an inflation rate of about 29% by the end of the year, Addison said. “We’re hoping to be pleasantly surprised,” he said. “Just the base period effect alone should held drive inflation down very quickly.”
--With assistance from Simbarashe Gumbo.
