ACCRA – Ghana’s central bank on Monday raised its key interest rate by 200 basis points to 19% to ease inflationary pressures and promote macroeconomic stability, Governor Ernest Addison said.
In March, the Bank of Ghana raised its policy rate by 250 basis points to 17% – the largest increase in its history – to stem the tide of inflation in one of the richest countries in West Africa as the government slashed spending to reduce the budget deficit.
But in April, gold, oil and cocoa producers hit an 18-year high of 23.6%.
Addison said total government debt stands at about 6 percent of GDP.
The outflow of capital completely offset the $ 1.3 billion trade surplus earned from the 61% jump in crude oil export earnings in the first quarter.
Addison said it made an overall balance of payments deficit of $ 934.5 million in the first quarter, compared to $ 429.9 million in the same period last year.
“The committee is of the view that in order to deal decisively with the current inflationary pressures, it is necessary to restore expectations and help increase macroeconomic stability,” Addison said at a press briefing in the capital, Accra.
The rapid devaluation of the Ghanaian sedi has slowed but the currency has lost more than a quarter of its value since the beginning of the year.
Although April inflation was driven primarily by transportation costs, prices of the items surveyed rose by more than 96%, meaning most Ghanaians are feeling the pinch.
Central bank forecasts show a “prolonged horizon” for inflation to return to the target band, Addison said.
Finance Minister Ken Ofori-Atta said another increase would be a “knee-jerk reaction” to mostly imported inflation, making it harder for the government to service its internal debt.
Ofori-Atta is committed to managing Ghana’s debt without the help of the International Monetary Fund. (Reporting by Christian Ackerley and Cooper Invin; editing by Sophia Christensen and Hugh Lawson)