BoG could hold rate ...as MPC decides Friday

The Bank of Ghana could adopt a wait-and-see approach as its monetary-policy committee (MPC) meets today, ahead of the announcement of its policy-rate decision on Friday.

At its last meeting in February, the MPC raised its benchmark lending rate by one percentage point to 13.5% to avert inflationary pressure associated with a weak currency in a country that guzzles billions in imports annually.

“Barring any significant developments on the pricing front, we expect the monetary-policy committee to maintain the policy rate at 13.5%,” said Nii Ampa-Sowa, Head of Research at Databank Financial Services Limited.

While inflation remains low and stable, the Central Bank may face pressure to hike interest rates for a second time this year to further support the cedi, which in the first quarter of this year has lost nearly as much of its value as it gave away in 2011.

“There may be pressure to review [the rate] upward following the GHS/USD decline so far this year, but the committee will resist the urge to revise it as the full effect of the 100-basis-point policy-rate bump kicks in,” Nii Ampa-Sowa said.

He said he expects the cedi’s stability, the bank’s reserve position, and the government’s local borrowing needs to feature prominently in the MPC’s deliberations. The committee will also be mulling over how to shore-up the cedi against further decline.

Rising foreign-exchange demand to sate the country’s appetite for imports has been putting pressure on the currency, analysts have said. Ghana’s breakneck economic growth of 13.6% in 2011 and 9.4% forecast for this year has also been fuelling spending by households and businesses.

The country’s import bill rose to US$15.9billion in 2011 -- an increase of almost two-fold in just two years -- contributing to a widening of the country’s trade deficit by 8% to US$3.2billion.

Boosted by oil, exports soared by 60.6% to US$12.7billion -- but were not enough to trim the external deficit. The Bank of Ghana has said the oil sector has been responsible for both significant dollar inflows and outflows since production began in December 2010.

The bank has supported the cedi to the tune of at least US$1billion this year, and pushed up yields on Treasuries and bonds to attract dollar inflows. The yield on the 91-day bill rose to 13.21% at the last auction on March 30, the highest for more than a year.

Meanwhile, March inflation data expected to come in today could reveal what impact the cedi’s slide may have had on price changes. In February, price-growth slowed marginally to 8.6% from 8.7% in January.


Source: Bank of Ghana data

Source: B&FT