Ghana’s central bank maintained on Wednesday (July 31) its policy rate at 16%, aiming to find a balance between risks of higher inflation and slower growth. Ghana’s annual headline inflation accelerated to a three-year high of 11.4% in June compared to 10.4% in March and 8.8% in January due to the continued effect of the upward adjustment of petroleum prices in February, coupled with demand pressures and seasonal factors. Food inflation rose to 6.4% in June from 5.5% in March, while non-food inflation increased to 14% from 13.2% in the same period.

The Bank of Ghana said that the major upside risks to the inflation outlook include further petroleum price adjustments, possible adjustment of utility tariffs, and pressures arising from the pending public sector wage settlement. The risks could be moderated by the tight monetary policy stance, the ongoing fiscal consolidation and favourable seasonal factors, given the coming harvest season. The bank expects inflation is likely to be close to the upper band of its 7%-11% target range at the end of 2013 and to fall back to the middle of the band at the beginning of 2014, subject to the rate and timing of the adjustment in utility tariffs.

The Bank of Ghana said that prospects for growth have improved in the second quarter as evidenced in its Composite Index of Economic Activity (CIEA), a rebound in consumer confidence and improved credit conditions. It expects an improvement in energy supply and increased oil production to provide a further support to the economy. The CIEA, which measures the pace of economic activity, indicated a marginal pickup during the second quarter, rising by 3.4% y/y in June, compared to a 0.6% contraction in March. Consumer sentiment improved with the Consumer Confidence Index growing from 96.1 in April to 101.1 in June, while business sentiment worsened with the Business Confidence Index falling from 99 in March to 92.4 in June.

The central bank added that the main threats to the economic growth outlook include the continued decline of commodity prices and the weakening business confidence. Ghana is a major producer of oil, cocoa and gold.