IMF recommends Ghana raise interest rates

WASHINGTON, July 17 (Reuters) - The International Monetary Fund on Friday suggested that Ghana tighten monetary policy to reduce inflation, driven up by costlier food, strong domestic demand and a currency depreciation.

"With a tighter fiscal stance, it would be an opportune time for monetary policy to reduce inflation," the IMF said in its annual review of Ghana's economy.

"Therefore, in light of the negative real interest rates and the need to increase credibility of the inflation targeting framework, (IMF) directors supported a further tightening in the monetary stance," it added.

Inflationary pressures in Ghana have weighed this year, with 12-month inflation in the 20-percent-range from January through April 2009.

Ghana's prime interest rate was cut by 150 basis points to 18.5 percent in February 2009, and the central bank has expressed willingness to further tighten rates.

The IMF approved a $600 million loan agreement with Ghana this week, part of $1 billion in IMF resources due to the country over the next few years to get its fiscal house in order before the start of new oil production in 2010/11.

The IMF resources include $452 million in IMF special drawing rights, which is part an agreement struck by Group of 20 nations in April to boost global liquidity through a $250 billion allocation of SDRs among the IMF's 186 member countries.

SDRs are the IMF's internal unit of account and is allocated according to the size of a country's IMF subscription, or quota.

Ghana has been struggling with a widening fiscal deficit since last year when revenues were drained by record global food prices, a domestic power crisis, and election-related spending.

The IMF said it welcomed Ghana's plans to use the SDR allocation, possibly due later this year, to rebuild foreign exchange reserves.

It also said the authorities should not be complacent about the fiscal outlook for Ghana, with revenues expected to increase from oil profits, and the income should be used wisely.

Ghana is set to become Africa's newest oil producer and its offshore oil find has fueled hoped for faster growth in one of Africa's most promising economies, which is already a major cocoa grower and gold producer. (Reporting by Lesley Wroughton; Editing by Diane Craft)