The Bank of Ghana left its main interest rate unchanged at 21 percent on Wednesday, citing lower inflation risks as oil prices fall and hopes of a deal with the International Monetary Fund, Governor Henry Kofi Wampah said.
The government is due to start a final round of talks with the IMF on Wednesday for a financial package aimed at resolving fiscal problems that have helped slow growth.
Wampah said he was “very positive” about a deal soon. But talks began last September, and analysts said the uncertainty is rattling markets used to seeing Ghana as African economic star with high economic growth and a stable democracy.
“The pass-through effects of falling crude oil prices, declining inflation expectations … fiscal consolidation and a possible program with the IMF are expected to exert some downward pressure on inflation,” Wampah told a news conference.
The rate decision was widely expected.
The bank raised its year-end inflation forecast to 12-13 percent from 11.5 percent. Inflation slowed to 16.4 percent in January.
The West African state’s other fiscal problems include a stubbornly high budget deficit and a currency, the cedi that fell 31 percent in 2014.
The government is set to revise its 2015 budget projections in light of the oil price slump, leading to a higher deficit projection than the initial figure of 6.5 percent, said Razia Khan, the head of Africa research at Standard Chartered. Ghana is an oil-producing country.
“Until a deal with the IMF is agreed, it will be difficult for Ghana to shake off the uncertainty,” she said, adding that there are few clues to the direction of monetary policy.
Kwabena Yeboa Owusu, an analyst at Dortis Research in Ghana, said the decision sent a strong signal to investors before an upcoming three-year bond issue and added he expected the bank to maintain its stance in the short term.
“A long-awaited deal with the IMF could eventually pave the way for rates to be lowered, (but) we don’t expect any move over the coming months,” said Neil Shearing, chief emerging markets analyst at Capital Economics research body.
The bank raised rates to 21 percent in November from 19 percent and narrowed its interest rate corridor around its main rate to 300 basis points from 500 points.