UPDATE 1-Ghana dep c.bank targets 5 pct appreciation in cedi

Tue Jun 7, 2011 9:32am EDT

Related Topics

* Inflation likely to stay under 10 percent

* Food price inflation set to moderate

(Adds quotes on inflation, currency, bonds)

By Carolyn Cohn

LONDON, June 7 (Reuters) - Ghana's central bank targets an appreciation of 5 percent in its cedi currency over the rest of the year, the bank's deputy head said on Tuesday, as the country's growth prospects look strong due to oil.

Inflation is likely to remain below 10 percent at the end of 2011, however, Millison Narh told a conference. "We have a 5 percent (cedi) appreciation target for the rest of the year. We do not expect (deviation) of more than 2 percent plus or minus (from the target)," he said.

"We are expecting that by the end of the year, we will still be recording single-digit inflation."

Ghana's annual inflation stood at 9.02 percent in April and the International Monetary Fund has warned the country of inflation risk.

The Bank of Ghana surprised many analysts by shaving a further 50 basis points off its prime policy rate to bring it to 13 percent in May -- 550 basis points lower than its late 2009 level.

Food price inflation was likely to moderate due to the upcoming harvest season, Narh told reporters on the sidelines of the conference, with the only risk to the forecast coming from any hasty spending of oil revenues.

Ghana started pumping oil at the end of last year, and 30 percent of revenues from oil are intended to be saved in "Heritage and Stabilisation" funds.

The government forecasts 12.3 percent growth this year, helped by the start of oil production.

The cedi GHS= hit record lows against the dollar earlier this year, with analysts saying the central bank was aiming to keep the currency weak to make exports competitive.

The currency operates on a managed float basis, Narh said, enabling the central bank to work towards its appreciation target.

"On a weekly basis we are reviewing the situation, we are intervening appropriately to get to that target."

Narh said plans for a domestic five-year bond issue were "in the works" but said the bank was concentrating on three-year issuance.

The central bank's latest auction of three-year bonds was undersubscribed and yields rose from the April auction.

(Reporting by Carolyn Cohn; Editing by Ron Askew)

FILED UNDER: