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Ghana: Ready, Steady, No

A positive IMF report on the government’s attempts to fix Ghana’s finances and the prospect of a $1.5bn Eurobond placement in the autumn have seen the Cedi recover sharply since the end of last month.

The MPC will make an interest rate announcement this afternoon. Should it retrace, even partially, on May’s 100 basis point increase in the policy rate?

No. At 16.9% headline inflation remains way above the 11.5% year-end target and the pass-through from the Jan-June 2015 Cedi slide is likely to continue (the June print is also released today). Moreover, the Committee should wait to see if the Cedi recovery has fed through to lowering inflation expectations. Finally, the adjustment heat should be maintained on President Mahama’s administration to continue the fiscal consolidation path which, so far, looks as if it could reduce the budget deficit to 7.0% of GDP rather than the 7.5% envisaged under the IMF loan. Given the past performance of Finance Minister Terkper, continued pressure needs to be firmly applied.

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