Ghana's Central Bank set to hold interest rates on cedi slump, inflationary pressures

Policymakers at the Bank of Ghana on Monday are expected to keep interest rates unchanged to tame inflationary pressures stemming from a slide in the cedi.

The cedi has lost about 5% of its value against the dollar since the monetary policy committee reduced borrowing costs on Jan. 29. The risks it presents to inflation, which has been bumpy this year, have most economists surveyed by Bloomberg convinced that the MPC will maintain the benchmark rate at 29%.

Governor Ernest Addison will begin discussing the MPCs deliberations around 11 a.m. local time.

“The last rate cut by the central bank seemed to have been inspired by the government’s narrative of an economic turnaround, the cedi has declined since then and inflation hasn’t moved below the 23% mark,” said Godfred Bokpin, a finance professor at the University of Ghana. “There is considerable uncertainty in the debt restructuring process, and besides, many corporations’ financial year end in March and the transfer of dividends is rife. In light of these, the optimal decision is to hold the policy rate,” he said.

Analysts anticipate the cedi, one of Africa’s worst performing currencies this year, will continue to weaken. The country’s international reserves remain too thin to effectively defend the currency and debt restructuring delays and concerns that an anti-LGBTQ bill, which could jeopardize Ghana’s access to vital international funding if it becomes law, are weighing on sentiment.

The world’s second-biggest cocoa producer is seeking to rework its liabilities as part of a $3 billion International Monetary Fund program it secured last year to help it return to debt sustainability.

It has completed a domestic bond workout and reached a deal in principle with bilateral lenders in January to rework $5.4 billion of loans. It is still negotiating with eurobond holders who are owed $13 billion.

Presidential elections in December may also factor into the MPC’s decision. With consumers becoming increasingly frustrated by the high cost of living, the ruling New Patriotic Party may increase spending, which could contribute to fiscal spillage.

“The Bank of Ghana would be minded not to do anything that will trigger portfolio outflows. The room for rate cuts this year is very small,” Bokpin said.