Bank of Ghana raises interest rates

As reported in Ghana Politics & Security, there has been considerable speculation about whether the Bank of Ghana (BoG) would implement a second increase in the policy interest rate this year, even if – according to some economists and analysts – further rate increases may only be partially effective in stemming Ghana cedi depreciation.

Last week, the bank confirmed this speculation and announced an increase in the interest policy rate by another percentage point to 14.5%. This means that Ghana has already raised interest rates by 2% during 2012 which is a fact that will particularly displease local businesses which are already complaining of reduced bank funding is the policy rate increase is be passed on by financial institutions to their corporate clients.

In making this announcement the Bank of Ghana governor Kwesi Amissah-Arthur warned of future price inflation and currency depreciation risk. He went so far as to say that the “recent developments in the exchange rate remain a major source of concern” and that Ghana may have to deplete international reserves to slow further decline.

Ghana's strong economic performance could be affected in the current election year, according to the governor, with cedi depreciation and general exchange rate developments able to negatively “offset” the positive effects of Ghana's recent macroeconomic stability.

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