Bank of Ghana seen hiking policy rate

Ghana’s central bank could hike its primary lending rate by up to 100 basis points this week in a pre-emptive move against mounting inflationary pressures, including recent weakness of the West African country’s currency, analysts said.

The bank’s Monetary Policy Committee (MPC) is expected to announce its rates decision on Friday after a three-day meeting beginning on Wednesday.

The cedi has remained under pressure for most of the year, plunging to fresh lows in recent weeks, due largely to homegrown Ghanaian businesses buying dollars to buy imported equipment. Overall, it fell 7.16 percent against the dollar in the first quarter.

Ghana’s statistical office is set to release consumer inflation data for March on Wednesday and analysts said the figure could go up to around nine percent, after falling marginally to 8.6 percent the month before.

At its last meeting in February, the MPC raised the policy rate by one percentage point to 13.5 percent, the first hike in three years, citing risks from the euro zone debt crisis and currency volatility.

Standard Chartered Bank analyst Razia Khan said she expected the MPC to hike the lending rate by another 100 basis points, taking it to 14.5 percent.

“Although inflation remains well-behaved for now, risks are mounting due to the recent weakness of the Ghana cedi,” she said in response to questions from Reuters.

Ghana will hold presidential and parliamentary elections in December and there are concerns from investors and donors that the government could further trigger inflation if it bows to widespread public sector wage demands and other expenditures not already earmarked in the 2012 budget.

STILL BENIGN

Access Bank Ghana’s chief trader, Kwabena Yeboah, projected a 50-100 basis points hike in the policy rate and Jacob Brobbey of Barclays Bank Ghana projected a 50-basis point hike.

Other analysts believe the rates would remain unchanged at 13.5 percent.

Economist Yvonne Mhango of Renaissance Capital, said she expected inflation to edge up to nine percent year-on-year largely due to a weak cedi, but projected that the MPC would maintain the rate.

“We don’t expect monetary policy to be tightened on Friday because real rates remain positive, due to relatively benign inflation,” she said, while adding there was a small chance it could hike in response to the weak cedi.

Nii Ampa-Sowa of Accra-based Databank Financial Research also predicted that the policy rate would remain unchanged.

“Barring any significant developments on the pricing front, we expect the monetary policy committee to maintain the policy rate at 13.5 percent.”

He said there might be pressure to review it upwards, following the cedi’s decline so far this year, “but the committee will resist the urge to revise it, as the full effect of the (previous) 100 basis points policy rate bump kicks in”.

Ampa-Sowah said March’s headline inflation could “slightly worse off at 8.7 percent”, owing to currency weakness and further climbing up to 12 percent at year-end.

“We believe that increased election spending and the likely review of energy prices will cause pricing pressures to end the year within the range of 10 percent and 12 percent,” he said.

Reuters.