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Business News of Saturday, 27 June 2020

Source: Bloomberg

Ghana will ‘wait and see’ before raising interest rates


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Ghana’s central bank may wait six months before it considers raising rates, even as inflation accelerated further above its target range for a second straight month in May.

The regulator is monitoring economic growth that’s expected to slow significantly this year due to the coronavirus pandemic, Bank of Ghana Governor Ernest Addison said at a conference Thursday. The impact of the virus may only begin to subside from next year, he said.

“The rate of inflation has jumped outside the central bank’s target range,” Addison said. “We should be thinking of tightening policy, but given the current circumstances and weaknesses in growth, the central bank will adopt a wait-and-see attitude to see how the headline inflation progresses over the next quarter.”

Ghana’s inflation advanced to 11.3% in May from 10.6% a month earlier. That compares with the central bank’s target range of 6% to 10%. Still, Addison expects the rate to return to within the band before the end of the year.

The central bank maintained its benchmark interest rate at 14.5% in May after cutting it by 150 basis points to an eight-year low in response to the pandemic.

Deficit concerns

Addison is “worried” the budget deficit is set to widen to more than 7% of gross domestic product this year versus the target of 4.7%, posing a challenge to monetary policy. The expectation that economic growth will bounce back to 5% in 2021 will, however, help to ease budget pressures, he said.

The Ministry of Finance in March projected economic growth would slow to 1.5% this year, the lowest in 37 years, due to the global health crisis.

While banks’ non-performing loans are on the rise due to the economic circumstances, the trend will be restrained as soon as growth picks up, Addison said.

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