ACCRA: Ghana’s central bank on Monday raised its main interest rate by another 1 percentage point to 28%, extending a tightening cycle that has so far failed to bring inflation down from multi-decade highs.
The cocoa, gold, and oil-producing nation, one of West Africa’s largest economies, is facing an economic crisis that saw consumer inflation rise to 54.1% last month.
Its cedi currency has lost about 50% of its value against the dollar over the past year, and interest payments on government debt have swelled to between 70% and 100% of gross domestic product as the country awaits a relief package from the International Monetary Fund (IMF).
The central bank has now hiked rates by 13.5 percentage points since the start of 2022.
“There are emerging signs that the current macroeconomic conditions are spilling over to the banking sector,” Bank of Ghana Governor Ernest Addison told a news conference.
“The MPC (Monetary Policy Committee) sees the need to remain vigilant and moderate liquidity in the system to underpin the macroeconomic adjustments taking place to drive inflation on a downward path.”
Ghana’s balance of payments deficit worsens to $3.64bn
Ghana secured a staff-level agreement with the IMF for a $3 billion support programme late last year but must restructure its debts to get executive board approval.
It is currently negotiating the terms of a domestic debt exchange programme with local bondholders, and it has asked to restructure its bilateral debt under the Common Framework platform supported by the Group of 20 major economies.
“If all is successful, we should get a disbursement (from the IMF) by the end of the first quarter or soon after that,” said Addison.
The government has struggled to convince bondholders to sign up for the domestic debt swap programme, the deadline for which is on Tuesday, and has said it will create a financial stability fund to help banks weather the move.
Addison said on Monday that the central bank does not plan to be part of the financial stability fund, which is being financed primarily by Ghana’s external partners.