ACCRA, May 22 (Reuters) - Ghana’s central bank raised its prime interest rate by one percentage point to 16 percent on Wednesday, citing potential inflation risks from a weakening cedi currency and high government spending.
Central Bank Governor Henry Kofi Wampah said Wednesday’s monetary policy committee also discussed risks to economic growth from lower commodity prices, weaker business and consumer confidence, tighter credit and challenges in the fledgling energy sector.
“On balance, the committee held the view that the risks to the inflation outlook were elevated and outweighed the risks to growth,” he told a news conference.
In April, consumer price inflation rose to its highest level since June 2010, 10.6 percent, on the back of depreciation in the cedi currency, a rise in fuel prices and seasonal effects. The government wants CPI in the single digits.
However, economists said the increase in rates - after the bank had kept its key policy rate steady since June - could slow activity in the $39 billion economy, which has become one of Africa’s hottest frontier markets.
Despite concerns over the government’s fiscal deficit - which topped 12 percent last year - Ghana’s stock market has risen by more than 50 percent in 2013.
“This certainly will raise concerns about growth this year, and comes at the back of uncertainty about Ghana’s inflation outlook,” said analyst Sampson Akligoh of Databank.
“I see interest rates for Ghana remaining high for the most part of the year,” he said.
Earlier on Wednesday, the national statistics office announced that annual producer price inflation fell to 10.2 percent year-on-year in April from a revised 10.6 percent in March, due mostly to lower gold prices.
Producer price inflation is an advance indicator of consumer price inflation.