A surprise 100 basis point interest rate rise in Ghana to 22 percent should help slow the decline of the cedi currency towards stability and boost the credibility of the central bank governor said on Thursday. The decline of the cedi by 17 percent this year and 31 percent last year is one sign of a fiscal crisis in Ghana, a country where years of strong GDP growth through exports of gold, cocoa and oil has given way to a sharp slowdown.
Ghana began an International Monetary Fund aid program in April that aims to restore fiscal balance. Governor Henry Kofi Wampah told Reuters in an interview that Wednesday's rate decision was taken in part to bolster reserves and also to minimize the impact from an expected US rate hike later in the year. "It would make cedi assets more attractive and would also reduce aggregate demand, including demand for imported goods, and that would ease the pressure on the foreign exchange market," Wampah said, adding it would boost bank credibility.
Wednesday's hike surprised analysts who expected the bank to hold the rate. "We believe it (the decision) is the appropriate option when we have noted that the horizon for achieving the targets set earlier will take longer than anticipated," he added. The cedi touched a record low of 3.94 on Wednesday before recovering marginally to 3.900 at 1000 GMT on Thursday.
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