Ghana’s central bank is likely to maintain its benchmark interest rate at 29% for a second consecutive meeting, aiming to control high inflation and stabilize the weakening cedi. This decision is anticipated amidst the backdrop of persistent currency depreciation and rising import costs.
Economic Outlook and Central Bank Strategy
Most economists surveyed by Bloomberg predict that the Bank of Ghana’s Monetary Policy Committee (MPC), led by Governor Ernest Addison, will opt to keep the policy rate unchanged. The announcement is expected later today in Accra.
“I anticipate that the Bank of Ghana will hold the policy rate steady in May to support the cedi and prevent higher import prices from sustaining elevated inflation levels,” stated Mark Bohlund, a senior credit research analyst at REDD Intelligence.
Since the MPC’s last meeting in March, the cedi has depreciated by approximately 10% against the U.S. dollar, making it the worst-performing currency globally during this period. This depreciation has been a significant driver of inflation, which has averaged around 25%.
Factors Influencing Currency and Inflation
The cedi’s decline has been exacerbated by a sharp drop in cocoa export revenues. Earnings from cocoa, which Ghana relies on to support its currency, fell by 49% to $599 million in the first four months of this year. This downturn has been attributed to adverse weather conditions, crop diseases, and a shortage of fertilizers, impacting Ghana’s position as the world’s second-largest cocoa producer.
Potential for Future Rate Cuts
Despite current challenges, some analysts, including Bohlund and Courage Boti, an economist at Accra-based GCB Capital Ltd., believe there could be room for rate cuts in the near future. They suggest that the MPC might consider reducing rates at its July meeting if the currency stabilizes and inflation pressures ease.
The potential recovery of the cedi could be bolstered by an expected $360 million disbursement from the International Monetary Fund (IMF) at the end of June. This follows a draft agreement to restructure Ghana’s debt with its official creditors, a key condition for securing the IMF funds.
Ghana is in the process of reorganizing most of its $42.2 billion debt as part of the conditions for a $3 billion IMF program. Reaching a deal on a draft memorandum of understanding (MOU) was essential to obtain the $360 million installment.
Boti highlighted that favorable base effects could also lead to a sharp deceleration in inflation. “The more appropriate time to consider a rate cut will likely be July, by which time the currency pressures would have eased, and its full impact can be assessed,” he said.
Analysis and Investment Opportunities
For investors, Ghana’s economic adjustments present both challenges and opportunities. Maintaining high interest rates to support the cedi and curb inflation could stabilize the financial environment, offering a more predictable landscape for investment. However, ongoing currency volatility and inflation risks necessitate a cautious approach.
Potential IMF disbursements and successful debt restructuring could improve investor confidence and provide opportunities in Ghana’s financial markets, particularly if these measures lead to economic stabilization and growth.
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