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Ghana’s central bank maintains rates as deflation slows 

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For the second consecutive meeting, Ghana’s central bank kept its main interest rate at 29% on Monday, citing a slowdown in inflation caused by the local cedi’s drop.

The producer of cocoa, gold, and oil in West Africa has been restructuring its loans in an attempt to recover from the worst economic crisis in a generation. The company defaulted on the majority of its external borrowing in December 2022.

“The latest forecast shows a slightly elevated inflation profile on account of recent exchange rate pressures,” Bank of Ghana Governor Ernest Addison told a news conference, adding that inflation was expected to fall to between 13% and 17% by the end of 2024.

Although consumer inflation decreased somewhat from 25.8% in March to 25.0% year over year last month, it is still much above than the central bank’s 8% objective, with a 2 percentage point error margin.

Addison stated that while speculative foreign exchange purchases have weakened the cedi, the central bank still had sufficient reserves to stabilize the market. The University of Ghana’s Godfred Alufar Bokpin, a professor of finance, stated that with the cedi’s present risks and the upcoming general election later this year, there was little room to loosen monetary policy.

Ghana is presently examining before signing a draft memorandum of agreement that it received last week from its bilateral creditors, which include China and France, to restructure $5.4 billion in debt.

Once approved, the agreement will allow the executive board of the International Monetary Fund to convene the following month to authorize the payment of $360 million from the nation’s $3 billion bailout program, which Addison claimed removed a great deal of doubt.

“We are very happy and quite certain that the Fund meeting will happen in June,” Addison told Reuters on Monday.

Apart from the restructuring agreements with official creditors, Ghana is attempting to reach an agreement with holders of international bonds worth approximately $13 billion. Its local debt has mostly been adjusted.

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Zambia eyes recovery following worst drought

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As it emerges from its worst drought in living memory, Zambia hopes to achieve a fast recovery in economic growth and a halving of its budget deficit in the following year, the country’s finance minister announced on Friday.

In contrast to a projected 2.3% growth in 2024, the copper producer aims for 6.6% growth in 2025, according to Finance Minister, Situmbeko Musokotwane, in a budget speech.

The El Nino-caused drought destroyed Southern Africa’s crops, resulting in food shortages and harming the region’s economic prospects this year.

Zambia’s finance minister said on Friday that the nation, which is coming out of the worst drought in living memory, intends to quickly recover economic growth and cut its budget deficit in half the next year.

Finance Minister Situmbeko Musokotwane stated in a budget address that the copper producer is targeting 6.6% growth in 2025 as opposed to a projected 2.3% increase in 2024.

A UNICEF study in March 2024 states that the majority of the country’s central and southern regions have been impacted by the dry spell since mid-January. These regions have gotten less rainfall than usual, which has resulted in the destruction of one million hectares of maize—nearly half of all the corn grown in the nation.

Since hydropower generates more than 80% of Zambia’s electricity, the analysis also predicted that the drought would cause a power shortage of 430 megawatts and have an impact on surface and groundwater levels. These projections would have serious ramifications for industries other than agriculture.

The minister further stated that following the conclusion of a Eurobond restructuring exercise, Zambia was still negotiating restructuring arrangements with certain commercial creditors.

He reported that the China Development Bank and the Industrial and Commercial Bank of China have just struck provisional restructuring agreements with Zambia.

It has been demonstrated that the agreements are in line with Zambia’s IMF program and the “Comparability of Treatment principle,” which aims to prevent the wealthier creditor nations that make up the Paris Club from making disproportionate concessions in comparison to other creditors.

The lengthy debt restructuring process in Zambia has hurt local financial markets and discouraged investment.

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Ghana central bank cuts key rate as inflation cools

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The governor of Ghana’s central bank has stated that the country’s economy is still recovering strongly and that inflation is continuing to decline, causing the bank to drop its main interest rate by 200 basis points to 27%. This was the first rate cut since January.

 

At a press conference Friday, Bank of Ghana Governor Ernest Addison stated that economic indicators point to a proceeding disinflation, with price increases continuing to moderate in the direction of the year’s short-term range target of 13% to 17%.

 

“Such a strong signalling of the monetary policy rate by reducing it by 200 basis points tells you that the central bank is quite satisfied with the progress of recovery of this economy,” Addison said, adding that all indicators including growth, inflation and fiscal policy are improving.

According to Reuters polled economists in July, Ghana’s interest rate is predicted to drop by 200 basis points by year’s end.

 

 

“This easing of policy is understandable, given that the recent falls in inflation had caused real interest rates to rise, something that this cut will partially reverse,” said Leslie Dwinght-Mensah, economist and research fellow at Accra-based Institute for Fiscal Studies.

 

 

“The strong rate of economic activity, which official data recently revealed, also gave the central bank the comfort to take this step.”

 

 

Economists surveyed by Reuters in July expected that by year’s end, Ghana’s interest rate will have decreased by 200 basis points.

 

“This easing of policy is understandable, given that the recent falls in inflation had caused real interest rates to rise, something that this cut will partially reverse,” said Leslie Dwinght-Mensah, economist and research fellow at Accra-based Institute for Fiscal Studies.

 

“The strong rate of economic activity, which official data recently revealed, also gave the central bank the comfort to take this step.”

 

Economists surveyed by Reuters in July expected that by year’s end, Ghana’s interest rate will have decreased by 200 basis points.

 

 

“This easing of policy is understandable, given that the recent falls in inflation had caused real interest rates to rise, something that this cut will partially reverse,” said Leslie Dwinght-Mensah, economist and research fellow at Accra-based Institute for Fiscal Studies.

 

 

“The strong rate of economic activity, which official data recently revealed, also gave the central bank the comfort to take this step.”

 

Following the completion of preliminary debt restructuring negotiations with two bondholder groups, Ghana extended an invitation to holders of its approximately $13 billion worth of international bonds to exchange their holdings for new instruments.

 

Bondholders can accept the offer until September 30.

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