Ghana's central bank unexpectedly hikes rates

Ghana’s central bank unexpectedly hiked interest rates on Thursday in a bid to tame inflation which remained far above its target.

The benchmark policy rate was raised to 26% from 25%.

The country’s gross domestic product (GDP) sped ahead at a 4.2% pace in September 2015, but that came alongside consumer price inflation running at an annual rate of 17.4% year – driven by prices for non-food articles.

That was far ahead of the central bank’s target for consumer price inflation of 8% plus or minus 2%.

The West-African nation’s currency, the cedi, had tumbled by 15.6% year-to-date versus the US dollar, according to the central bank’s latest summary of macroeconomic and financial data, as the international prices of its two main exports, gold and oil, dropped sharply on international markets, by 44.2% and 5.6% year-to-date, respectively.

In the comparable period of 2014 the cedi depreciated by 31.2%.

"Our current forecasts show that without any additional policy adjustment, inflation is likely to drift farther away from the target band and lengthen the forecast horizon into late 2017," the central bank said in its policy statement.

"Risks from the global environment have heightened, driven mainly by slower growth prospects in China and other emerging market economies. Also, commodity prices continue to decline amidst tightening financial conditions. These have resulted in increased depreciation of currencies ranging from 19% to about 48% year-to-date in most commodity exporting countries."

In parallel, the central government’s public deficit stood at -5.1% of GDP as of September, although at -0.3% of GDP the primary balance – which excludes interest rate payments on the country’s debt – was healthier.

Ghana’s level of indebtedness stood at 92.2bn cedi as of September 2015, an amount equivalent to 69.1% of GDP, with roughly two-thirds of that being accounted for by external debt.