Ghana’s central bank on Monday raised its main lending rate by a further 250 basis points to 27% to try to quell inflation in an economy facing its worst economic crisis in a generation.
The cocoa, gold, and oil-producing nation, one of West Africa’s largest economies, has experienced successive jumps in inflation which climbed to an annual 40.4% in October, a 21-year peak despite aggressive central bank lending rate hikes this year.
The local cedi currency has plummeted more than 50% against the dollar in 2022.
Bank of Ghana Governor Ernest Addison told a news briefing that the Monetary Policy Committee believed that there were signs that earlier rate hikes had dampened the pace of month-on-month inflation.
He said annual inflation could settle at around 25% by the end of 2023 if a tight policy stance was maintained.
Presenting the 2023 budget last week, the finance minister promised new measures to cut spending and boost revenue as the government negotiates a relief package with the International Monetary Fund (IMF).
Foreign bond haircuts are being considered as part of efforts to restructure spiralling debt.
Ghana’s total public debt stood at $48.9 billion at the end of September, $28.4 billion of which was external, according to government figures.
A debt management strategy has been agreed with the IMF.
“We will not be paying a lot of money to service debt in 2023,” Addison said.
“By the end of this year and by the time our debt operations are finalised it will begin to reflect in the budget and have its impact on the balance-of payments,” he said.
Economists at Goldman Sachs forecast the benchmark lending rate to peak at 29% in the first quarter of next year, below current annualised inflation but above the 2023 year-end estimate from the central bank.
“However, given our expectation for (forex) reserves to decline further and ongoing downside risks to the cedi, we see risks tilted toward a higher terminal policy rate,” they wrote.
GOLD-FOR-OIL SCHEME
Dwindling foreign currency reserves prompted a policy proposal last week whereby gold will be used to buy oil products rather US dollars.
Major mining companies have been ordered to sell 20% of their refined gold to the central bank from Jan. 1, 2023, as part of the scheme.
AngloGold Ashanti Ltd ANGJ.J and Gold Fields GFIJ, both of which have operations in the country, said on Friday that they had not yet been formally informed about this.
Addison said on Monday that all major mines had been consulted and that the IMF was informed in October.
Using gold will allow Ghana to import $300 million worth of oil products next year, he added.
“The Fund is very much aware of our gold purchase programme,” Addison said in response to a question.
“We were in Washington in October and we had technical discussions with them on that programme. I think they were more concerned with the monetary policy effects and implications, and issues of transparency and accounting. These were the issues that came up. But yes, they are very much aware.”
