Ghana may cut rate for second meeting as inflation slows

Accra - Ghana’s central bank is likely to cut its benchmark interest rate for a second straight meeting after consumer prices rose at the slowest pace since July 2014.

Governor Abdul Nashiru Issahaku has enough room to reduce the West African nation’s main rate by as much as 150 basis points from 25.5%, according to John Ashbourne, an economist with Capital Economics.

The Monetary Policy Committee announces its decision on Monday in the capital, Accra. Four of the six economists surveyed by Bloomberg said they expect the rate to be reduced.

"The bank began a cutting cycle in November, and we think that policy makers will continue with another 500 basis points" of reductions in 2017, Ashbourne said by e-mail.

"Inflation is easing as the effects of the 2014 fall in the cedi fades. We see the Bank of Ghana cutting to 20% by the end of the year."

The bank reduced the rate for the first time since May 2011 in November. While inflation has been outside the central bank’s target band of 6% to 10% since at least January 2013, growth in consumer prices decelerated to 15.4% in December, slowing for a third straight month.

The economy probably expanded 4.1% in 2016, according to forecasts from the government, which is now led by President Nana Akufo-Addo after he won an election last month.

Cedi performance

Ghana’s cedi had strengthened 5.6% since reaching a record-low 4.49 against the dollar in June 2015. It depreciated 26% in 2014, the biggest annual drop since 2000.

The country probably missed its budget-deficit target for 2016 because of lower-than-expected oil output and higher spending on elections and energy-industry debts, former Finance Minister Seth Terkper said on December 21.

West Africa’s second-biggest economy will miss its fiscal-shortfall projection of 5.3% of gross domestic product by as much as to 2 percentage points, Terkper said. Ghana’s deficit was 6.3% of GDP in 2015.

Cocoa and crude are the nation’s main commodity exports, with Ghana being the world’s largest producer of the chocolate ingredient after neighbouring Ivory Coast.

"Given a new government, concerns about growth, and disinflation, there is a strong possibility of a rate cut at today’s central-bank meeting," analysts at FirstRand’s [JSE:FSR] Johannesburg-based Rand Merchant Bank said in an e-mailed note.

"Our core view is for rate cuts to continue throughout 2017 and even stretch below 20%."