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Ghana MPC Picks Inflation Fight Over More Growth Boosting

Ghana Holds Key Rate as Food-Price Surge Breaks Inflation Band

(Bloomberg) --

For Ghana’s central bank, the coronavirus pandemic exacerbated an old monetary policy dilemma of having to choose between reining in price moves and boosting economic growth. On Friday, Governor Ernest Addison and his team chose to focus the former.

Food-price increases spurred by lockdown measures meant the central bank could not cut interest rates further to prop up the economy that’s been hit by the coronavirus pandemic, and the monetary policy committee held the benchmark at 14.5%.

While further easing may have supported an economy that is forecast to grow at the slowest pace in 37 years, inflation shot over the 10% upper boundary of the target band in April after food-price growth quickened to 14.4% from 8.4% in March. This was due to increased demand for food stemming from the two panic-buying episodes before markets across the country were closed to do sanitation and partial lockdowns started in Accra and Kumasi, the two biggest cities, Addison said.

The unchanged stance matched the prediction of three of the six economists in a Bloomberg survey. Of the six, two forecast a 50 basis-point cut and one expected a 100 basis-point reduction.

Ghana MPC Picks Inflation Fight Over More Growth Boosting

“The worse-than-expected inflation print in April and persistent foreign-exchange risks may have been top of mind for the monetary policy committee,” Ridle Markus, an Africa strategist at Johannesburg-based Absa Bank Ltd., said in emailed response to questions. “With the exchange rate remaining a threat as the country heads into the year-end elections and the need to contain inflation, we do not expect further policy rate easing in the coming months.”

The currency of West Africa’s second-biggest economy weakened 0.4% to 5.84 per dollar by 1 p.m. in Accra on Friday, bringing its fall since the first case of the virus was recorded in the country on March 12 to 3.2%.

Addison said inflation would return to the target range of 6% to 10% by the end of the year after peaking in the second quarter. Ghana was one of the first sub-Saharan African countries to cut interest rates in response to the pandemic. Despite the 150 basis-point move two months ago, economic growth is projected at 2% to 2.5% this year, the central bank said. That compares with a forecast of 5% in March.

©2020 Bloomberg L.P.