By Cooper Inveen
ACCRA (Reuters) -Ghana’s central bank on Monday raised its main interest rate by 200 basis points to 19% to curb inflationary pressures and promote macroeconomic stability, Governor Ernest Addison said.
In March the Bank of Ghana raised its policy rate by 250 basis points to 17% – the largest hike in its history – to stem runaway inflation in one of West Africa’s more prosperous nations as the government cut spending to reduce the budget deficit and save a sliding local currency.
But in April the consumer inflation rate in the gold, oil and cocoa producer hit an 18-year high of 23.6%.
“The committee took the view that it needed to decisively address the current inflationary pressures to re-anchor expectations and help foster macroeconomic stability,” Addison told a press briefing in the capital Accra.
The rapid depreciation of Ghana’s cedi has slowed but the currency has still lost over a quarter of its value since the year began.
Capital outflows have entirely offset a $1.3 billion trade surplus gained from a 61% jump in crude oil export revenues in the first quarter.
Addison said that had created an overall balance of payments deficit of $934.5 million in the first quarter compared with $429.9 million in the same period last year.
Although the jump in April inflation was mainly driven by transport costs, prices rose for more than 96% of surveyed items, meaning most Ghanaians are feeling the pinch.
Central bank forecasts show a “prolonged horizon” for inflation to return to its target band, Addison said.
Finance Minister Ken Ofori-Atta had said another hike would be a “knee-jerk reaction” to mostly imported inflation, making it hard for the government to service its domestic debt.
Addison said the total public debt stood around 78% of gross domestic product and that Ghana had been unable to access capital markets since Fitch and Moody’s both downgraded its sovereign credit rating earlier this year.
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Although one analyst called Monday’s rate increase a “bold move”, it remains to be seen how broadly recent hikes will bolster investor confidence. Ghanaian benchmark bond yields have risen to 5-year highs since the beginning of May.
The benchmark 10-year treasury note yield rose to 25.913% on Monday, up from 24.625% at the end of last week.
“While there was at least a further tightening, by our calculations, the [real] policy rate is likely to remain negative for some time,” said Razia Khan, Standard Chartered’s chief economist for Africa and the Middle East.
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(Reporting by Christian Akorlie and Cooper Inveen; Additional Reporting by Rachel Savage; Editing by Sofia Christensen, Hugh Lawson and Emelia Sithole-Matarise)
