Ghana Unexpectedly Hikes Rate for First Time in Six Years

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Ghana’s central bank raised its benchmark interest rate for the first time since 2015, citing “significant” inflation risks. 

The monetary policy committee lifted the rate by 100 basis points to 14.5%, the Bank of Ghana said in a statement Monday. The median estimate of nine economists in a Bloomberg survey was for the gauge to remain unchanged. Only two of nine forecast a hike and neither of them expected as much as a percentage point.

The increase — the first since November 2015 — unwinds some of the 250 basis points of easing announced since last year to prop up the West African nation’s coronavirus-ravaged economy. It comes after inflation accelerated to a 15-month high of 11% in October and breached the top of central bank’s target band of 6% to 10% for a second straight month.

“These elevated inflationary risks require prompt policy action to re-anchor inflation expectations to safeguard the central bank’s price stability objective,” the MPC said in a statement. The committee had room to move after it said recent data showed increased momentum in the pace of the economy’s recovery from the impact of the coronavirus pandemic.

Ghana’s move comes after the South African Reserve Bank, last week, raised borrowing costs for the first time in three years and shows that central banks in sub-Saharan Africa’s biggest economies are tackling price pressures, previously expected to be transitory, head on. Nigeria’s MPC votes on its key rate, for an economy where inflation has been above target since 2015, Tuesday.

“The move will be a welcome demonstration of the Bank of Ghana’s commitment to price stability,” said Razia Khan, head of research for Africa and the Middle East at Standard Chartered Plc. “While front-end yields will react to the increase in the policy rate, as is the norm, not acting on the inflation threat would have been far worse.” 

The currency and dollar bonds of Africa’s biggest gold producer have been among the worst performers on the continent this year. That’s in part because of Ghana’s debt burden and foreign investors seeking higher yields because of prospects of more aggressive U.S. Federal Reserve tapering and central banks dialing back their emergency support in the face of mounting inflation pressures.

The cedi, which was trading at 6.1200 per dollar before the decision on Monday traded weaker at 6.1229 per dollar at 1:28 p.m. in Accra. The yield on Ghana dollar bond maturing in 2026 rose about 0.34 basis points to 10.83% after the decision.

©2021 Bloomberg L.P.