Ghana Holds Rate Amid ‘Balanced’ Growth and Inflation Outlook

(Bloomberg) -- Ghana’s central bank kept its benchmark interest rate at its lowest level in almost a decade to shore up an economy that is recovering at a slower pace than expected and as inflation is seen remaining within target. 

The monetary policy committee held the rate at 13.5% for a second consecutive meeting, Governor Ernest Addison told reporters Monday in Accra, the capital. That matched the forecast of all eight economists in a Bloomberg survey.

“We thought that the risk from both ends are balanced,” said Addison, referring to the risks of slower growth and higher inflation. 

While Ghana’s gross domestic product expanded 3.9% in the three months through June from a year earlier, the economy is unlikely to expand 5% this year, as targeted by the government. 

The growth rate in Africa’s biggest gold producer needs to average around 6.5% in the second half to meet the forecast, which is unlikely given the ongoing disruptions from the pandemic amid still-low vaccination rates, Absa Research analysts Ridle Markus and Samantha Singh said in a note to clients earlier this month. 

“High frequency economic indicators point to continued recovery in economic activity even though below pre-pandemic levels,” Addison said. “Although consumer confidence picked up, weakening business sentiment stemming from supply disruption is adversely impacting input cost, driving down short-term company prospects.”

Slower-than-anticipated growth will increase the risk of the West Africa nation missing its expenditure and revenue targets. That would make it harder to fund its budget deficit and make its bonds less attractive to investors. The deficit is expected to return to within the legislated threshold of 5% of GDP by 2024, after breaching it last year.  

Inflation, which accelerated for a third straight month in August to near the top end of the central bank’s 6% to 10% target range has been driven by higher food prices. Those prices are expected to abate with the onset of the harvest season, Addison said. Inflation is seen remaining within the medium target band but closer to the upper limit in the absence of further unexpected shocks, Addison said. 

The central bank stands ready to respond appropriately “if we sense that there’s a higher risk of inflation going outside the target band,” he said.

©2021 Bloomberg L.P.