MPC Likely To Hold Policy Rate

Wampah PixBank of Ghana’s rate setting committee will keep its policy rate at 19.0 per cent this week on an expected foreign exchange liquidity boost, despite inflation surging above target, a Reuters poll has showed.

Twelve out of 14 economists polled about today’s rate announcement expect the bank’s Monetary Policy Committee (MPC) to hold the rate as recent Eurobond and cocoa loan proceeds hit the West African economy.

But with consumer inflation currently at 15.9 per cent, above the government’s comfort zone of 13 per cent plus or minus two per cent, two economists expected a further 100-basis-point hike in November.

Ghana on Thursday raised $1 billion from a third Eurobond sale to finance the govern-ment’s budget. It also signed a syndicated loan of $1.7 billion from international banks for the purchases of cocoa in the 2014/15 crop year.

Analysts believe the inflows would provide additional foreign exchange liquidity to shore up the local cedi currency’s nascent stability after it slumped nearly 40 per cent in the first half of the year.

“Following the recent retrace-ment in the Ghana cedi, market optimism over the recent Eurobond and proceeds from the Cocobod syndication, there is less immediate pressure on the Bank of Ghana to tighten rates,” Razia Khan, head of Africa global research at Standard Chartered Bank said.

The bank had held the rate at 18 per cent from February until July when it hiked it to 19 per cent.

“That said, we do not think we are at the top of the cycle yet. We expect a pause now and a hike of 100 bps in November, taking the prime rate to 20 per cent,” Khan added.

The country, which has a record of political stability and sustained strong economic growth, is currently battling a stubbornly high budget deficit, escalating inflation and widening current account imbalance.

Economist Sampson Akligoh also predicted a rate hold to reflect the inflationary pressures and the stability of the cedi.

“I think the balance of risk in the economy supports a rate decision within the band of 19-19.5 per cent, which shows a steady rate decision or a marginal increase to continue a signal of monetary tightening,” Mr. Akligoh said.

President John Mahama’s economic management team, led by veteran finance minister Kwesi Botchwey, is in talks with the International Monetary Fund (IMF) for a possible bailout to fix the fiscal challenges.

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