Ghana Holds Key Interest Rate at Amid Inflation Pressures

Ghana’s central bank held its benchmark interest rate for a sixth consecutive meeting as it monitors the impact of new tax measures on inflation.

The monetary policy committee held the rate at 14.5%, the central bank said Monday in an emailed statement. That matched the forecast of all five economists in a Bloomberg survey.

Inflation in the West Africa nation has been above the central bank’s target range of 6% to 10% for most of the past year as food prices surged due to supply constraints caused by restrictions to curb the spread of the coronavirus. The Bank of Ghana expects the rate of price growth to be back in target in the second quarter of this year, it said in the statement.

Short-Term Pressures

“Risks to inflation in the near-term are broadly balanced, but there are emerging short-term pressures emanating from the rising crude oil prices and the direct and secondary price effects of the revenue measures announced in the 2021 budget,” the MPC said in the statement. Monetary policy would need to remain vigilant to monitor these risks, it said.

The government rolled out new tax measures to reduce a fiscal gap that reached 11.7% of gross domestic product in 2020.

Read more: Key African Central Banks Aren’t Rushing to Raise Interest Rates

A stronger cedi may ease price-growth pressures, reducing the need for the central bank to follow emerging-market peers with tightening policy. Still, Ghana has little fiscal space and may need to use interest rates to attract capital to fund its budget deficit that is projected to fall below the legislated threshold of 5% of GDP by 2024.

The economy of the world’s second-largest cocoa producer slipped into a recession in the third quarter as virus-related restrictions stalled activity. The government expects GDP to expand 5% this year.

The central bank said Monday surveys conducted in February showed some softening of both consumer and business sentiment. The drop in confidence reflects heightened concerns about the potential return of restrictions following the upsurge in Covid-19 cases in the first two months of the year, it said.

— With assistance by Simbarashe Gumbo, and Moses Mozart Dzawu

(Updates with central bank’s comments on inflation and economy from third paragraph)