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By Kwasi Kpodo
ACCRA, July 9 The Bank of Ghana raised its prime
interest rate by 100 basis points to 19.0 percent on Wednesday
to contain inflationary pressure, and it urged tougher
government action to stabilize the economy.
Years of rapid economic growth and political stability have
improved Ghana's reputation, but the government is battling
fiscal instability, including a high budget deficit, inflation
and a currency that has depreciated 30 percent this year.
Annual consumer price inflation rose to a four-year high of
15.0 percent in June from 14.8 percent in May, the statistics
Central Bank Governor Henry Kofi Wampah told a news
conference the bank's Monetary Policy Committee viewed the risks
to inflation as elevated.
"The persisting fiscal and exchange rate pressures have
provided additional impetus for the worsening inflation
outlook," he said.
That figure pushed inflation further beyond the 2014 target
of 9.5 percent, plus or minus 2 percent, and it is not likely to
return to its target range before the fourth quarter of 2015,
Wampah said. He urged the government to take a firm policy
"Fiscal consolidation will require a more aggressive stance
in the second half of 2014. Government must continue to enhance
revenue measures and rationalise expenditures to achieve the
fiscal deficit target of 8.5 pct of GDP," he said.
The macro-economic problems have stirred a policy debate,
and Moody's agency last month cut its sovereign rating for
Ghana, citing the instability.
Several economists argue that the real responsibility for
restoring stability lies with the government of President John
Mahama rather than with the central bank.
Melissa Verreynne of NKC Independent Economists in South
Africa said the rise in interest rates was a positive move as
far as it went that would help restore credibility, rein in
inflation and stem the slide in the cedi currency.
"It may be counter-productive to address the economy's woes
by monetary measures, as the root cause is the fiscal position
... I am doubtful how much of an impact the policy rate increase
will have in the absence of substantial fiscal adjustments,
which do not seem to be forthcoming," she said.
For its part, the government says it will announce a series
of fresh policies soon and has already taken tough measures,
including cuts to fuel and utility subsidies in 2013, and that
it will achieve its objective of reducing the deficit under a
It also says the medium-term prospects for the economy are
bright, particularly once fresh oil revenues come onstream as
(Writing by Matthew Mpoke Bigg; Editing by Larry King)