Ghana’s central bank raised on Wednesday (May 22) its policy rate by 100bps to 16%, saying that risks to inflation were elevated and outweighed the risks to growth. Ghana’s annual headline inflation accelerated to 10.6% in April from 10.4% in March due to the continued effect of the upward adjustment of petroleum prices in February, coupled with seasonal effects. In January, the annual headline inflation rate stood at 8.8%. Food inflation rose to 6.4% in April from 3.5% in January, while non-food inflation edged up to 13% from 11.5% in the same period.

The Bank of Ghana said that the major upside risks to the inflation outlook include heightened inflation and exchange rate expectations, the lingering fiscal pressures, challenges in the energy sector, the effect of weakened commodity prices on the external sector, and the likelihood of full cost recovery in the energy sector. Food prices also continue to pose significant near-term risk to the inflation outlook.

The Bank of Ghana said that its Composite Index of Economic Activity (CIEA), which measures the pace of economic activity, contracted by 0.6% in March 2013 against a 14.8% growth in March 2012. Moreover the business and consumer sentiments have also worsened, with the Business Confidence Index falling to 99 in March from 104.1 in December 2012, due to the energy crisis and heightened inflation expectations, and the Consumer Confidence Index declining to 96.1 in April from 105 in January. The central bank added that the main threats to the economic growth outlook include lower commodity prices, energy sector challenges, weakened business and consumer confidence, and tightened credit stance.