Bank of Ghana may reduce interest rates for the first time since 2006 if inflation in the West African country continues to slow, said Kwesi Amissah-Arthur, who became governor of the Bank of Ghana today.

“I expect that as inflation goes down, we should start bringing down the prime rate,” Amissah-Arthur said in an interview yesterday at the central bank in the capital, Accra.

The bank has raised the prime rate to 18.5 percent from a low of 12.5 percent in December, 2006. Even so, the bank failed to achieve its inflation targets in 2007 and 2008, bringing inflation targeting into question, Amissah-Arthur said.

Inflation slowed to 19.65 percent in August, from 20.5 percent the month before and compared with a five-year peak of 20.7 percent in June. Price-growth had accelerated because of rising food and fuel costs last year, leading Ghana to raise interest rates while most central banks around the world were lowering rates amidst the global financial crisis.

In August, Finance Minister Kwabena Duffuor said Ghana was targeting inflation of 14.5 percent by the end of the year.

“If inflation targeting has failed to achieve the result of bringing inflation down to single digits, then we should look at other instruments,” Amissah-Arthur said.

Amissah-Arthur, 58, takes over as governor from Paul Acquah, whose contract expired last month after eight years in the post. Amissah-Arthur sat in on last month’s monetary policy committee meeting when the key rate was left unchanged. The rate was last raised by 1.5 percentage points in February.

‘Policy Reversals’

A member of President John Atta Mills’ economic advisory team and a deputy finance minister under former President Jerry Rawlings, Amissah-Arthur said he is unlikely to make any “major reversals of policy immediately.” He urged the government to aim for a faster economic growth rate.

Ghana is the world’s second biggest grower of cocoa, after neighboring Ivory Coast, and Africa’s second-largest gold producer, after South Africa. The government has forecast economic growth will slow to 5.9 percent this year from 7.3 percent last year.

“The GDP target is a little modest,” Amissah-Arthur said, adding that Ghana should aim for growth of between 8 percent and 10 percent within three to five years. “We should be attempting to obtain a much higher growth rate, but I also recognize that you need to stabilize the macro-economy first.”

In July, the International Monetary Fund agreed to lend the West African nation $1.02 billion to support the country’s balance of payments and help shore up its depreciating currency. The cedi has strengthened 3.8 percent against the dollar since July 10, following a slump of 26 percent in the previous 12 months.

Import Cover

Ghana currently has about two months of import cover following the loan from the IMF. It is aiming to cut its budget deficit to 9.4 percent of gross domestic product this year from 24.2 percent last year.

The country may seek other loans at concessionary rates to help manage the “significant arrears” that have helped boost the country’s budget deficit, Amissah-Arthur said.

“Why not, it gives you more degrees of freedom, it gives you flexibility,” he said.

The Ghanaian cedi weakened as much as 0.5 percent against the dollar today and was trading at 1.4530 against the U.S. currency at 12:23 p.m. local time.

source: bloomberg

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