Ghana’s Central Bank Cuts Key Rate for First Time Since 2011

(Bloomberg) -- Ghana’s central bank cut its benchmark interest rate for the first time in more than five years after inflation slowed to the lowest rate since 2014.

The Bank of Ghana cut the rate by 50 basis points to 25.5 percent, Governor Abdul Nashiru Issahaku told reporters Monday in the capital, Accra. Five of the six economists in a Bloomberg survey forecast the rate would be reduced and one said it would be kept unchanged at 26 percent.

“The fact that it is a very small move indicates that they are still on the path of keeping monetary policy really tight,” Celeste Fauconnier, an analyst at Johannesburg-based Rand Merchant Bank Ltd. who forecast a 100 basis points cut, said by phone. “We can now start to see this as the start of the cutting cycle.”

Inflation has been outside the central bank’s target band of 6 percent to 10 percent band for almost four years even as price growth slowed to 15.8 percent in October, the lowest rate since July 2014. The economy will probably expand 4.1 percent this year, according to government forecasts.

The risks to the economic outlook outweigh the threat of faster price growth, Issahaku said.

“Growth conditions remain weak and below trend,” he said. “This is underpinned by weak global demand, declining commodity prices and disruptions in the production of oil and gas.”

Falling Currency

The cedi weakened after the rate cut announcement, falling 2.8 percent to 4.09 against the dollar at 1:40 p.m. in Accra, heading for its lowest close since Aug. 2015.

Speculators are contributing to the currency’s performance, Issahaku said.

“Some of what we’re seeing now is purely speculative, because we have a stock of forex available,” Issahaku said. “There’s no shortage of forex on the market.”

The central bank received $500 million from the cocoa authority, improving reserves to four months of import cover, from 3.1 months in October, he said. The Ghana Cocoa Board raised $1.8 billion in September through syndicated loans for farmer payments. The country is the world’s second-biggest producer of the beans.

President John Dramani Mahama is campaigning for another term in office, leading the National Democratic Congress to polls scheduled for Dec. 7 against a background of slow economic growth and inflation that’s still in double digits. The West African economy is in the second year of an almost $1 billion loan-program with the International Monetary Fund after it turned to the Washington-based lender in April 2015 when lower prices for its gold, cocoa and oil exports caused debt to balloon and the currency to decline against the dollar, while regular power cuts weighed on output.

--With assistance from Simbarashe Gumbo and Pauline Bax To contact the reporters on this story: Ekow Dontoh in Accra at edontoh@bloomberg.net, Moses Mozart Dzawu in Accra at mdzawu@bloomberg.net, Thembisile Dzonzi in Johannesburg at tdzonzi@bloomberg.net. To contact the editors responsible for this story: Rene Vollgraaff at rvollgraaff@bloomberg.net, Andre Janse van Vuuren, John Viljoen