(Updates with governor’s comment in third paragraph.)
July 6 (Bloomberg) -- Ghana’s central bank cut its benchmark interest rate by half a percentage point, the second reduction in two months, to help spur lending and as a stronger currency curbs inflation.
The key lending rate was reduced to 12.5 percent, Bank of Ghana Governor Kwesi Amissah-Arthur told reporters today in the capital, Accra. Two of eight analysts surveyed by Bloomberg had forecast the reduction, while the rest expected it to be left unchanged.
“Inflation is going down and we don’t see the banks responding” to lower interest rates, Amissah-Arthur said. “The bank is confident that the annual inflation target of 9 percent is achievable.”
Inflation slowed to 8.9 percent in May from 9 percent the month before as the effects of a 30 percent increase in gasoline prices in January eased and the cedi stabilized. The currency, which weakened as much as 5.7 percent in the first five weeks of the year, has gained 3.5 percent since Feb. 1, trading as high as 1.5137 per dollar today.
“There is room to cut because inflation remains benign,” Yvonne Mhango, a Johannesburg-based sub-Saharan Africa economist at Renaissance Capital, said in an e-mail before today’s decision. “Moreover, a strong cedi in the second half of 2011 implies positive for inflation.”
Ghana is the world’s second-largest cocoa producer and became Africa’s newest oil exporter after production from its offshore Jubilee field began in December. The economy expanded 23 percent in the first quarter from 9.5 percent in the previous three months, the statistics office said on June 22.
“The sources of uncertainty that existed at the last MPC meeting have substantially abated,” the governor said. “Inflation expectations of businesses and the financial sector are well-anchored.”
Ghana exported 8.6 million barrels of oil, equivalent to $954.6 million, in the first five months of the year, Amissah- Arthur said. That helped to boost export earnings by 63 percent to $5.2 billion from a year ago, he said. Gold exports amounted to $2 billion, while cocoa earnings were $1.4 billion in the five-month period.
The Bank of Ghana lowered its benchmark interest rate four times between November 2009 and July last year as the inflation rate fell from a five-year high of 20.7 percent in June 2009. The rate was held unchanged for three consecutive meetings before it was reduced to 13 percent from 13.5 percent on May 13.
While credit demand has recovered, expanding 8.8 percent in May compared with a 3.4 percent contraction a year ago, the “sluggish response of banks is of concern,” the governor said. The central bank will set up a committee to review how commercial banks determine rates, he said.
--Editors: Philip Sanders, Nasreen Seria
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