UPDATE 1-Ghana central bank takes steps to halt currency slide

Kwasi Kpodo and Matthew Mpoke Bigg
Wednesday, 5 Feb 2014 | 11:15 AM ET

* Bank scraps transfers between accounts in foreign currency

* Ghana rate meeting brought forward amid external pressure

* Prominent pastor prays for resurrection of the cedi

(Recasts with new Bank forex rules, quotes)

ACCRA, Feb 5 (Reuters) - Ghana's central bank tightened foreign exchange rules on Wednesday and looked set to raise interest rates in response to a currency slide and the end of the U.S. Federal Reserve's monetary stimulus programme.

The Bank of Ghana is under further pressure to act because of inflation, which in December hit a three-year high of 13.5 percent in a country viewed as one of Africa's brightest prospects because of its stable democracy and high GDP growth.

Ghana's growth is based on exports of gold, oil and cocoa but import-led demand for dollars caused the cedi currency to depreciate nearly 20 percent in 2013 and 4.7 percent so far this year, according to Thomson Reuters data.

That fall, which has rattled consumers and shaken business confidence, is the latest problem confronting authorities already wrestling to control broader economic instability shown most starkly in a high budget deficit.

"These rules are intended to streamline the operations of these accounts and bring about clarity and transparency in their operations," central bank governor Henry Kofi Wampah told Reuters by telephone.

"We also believe they will significantly help in our ongoing measures to stabilise the cedi."

The currency measures, to be implemented immediately, require foreign exchange purchased for the settlement of import bills to be lodged in a special margin account that must be drawn within 30 days.

In addition, the Bank has scrapped transfers between foreign currency accounts, including between accounts denominated in the same currency, and directed that proceeds from exports should be converted into the cedi within five working days.

In one indication of the public mood, a prominent Ghanaian pastor made headlines this week when he prayed before his congregation of thousands for God to "resurrect" the cedi.


Wampah said external pressures had prompted him to bring forward to Thursday a meeting of the bank's Monetary and Policy Committee that was originally scheduled for Feb. 19.

Analysts said the Bank was likely to raise rates, making Ghana the latest in a line of countries to do so. India, Turkey and South Africa all increased borrowing costs in January to support their currencies.

The decision by the U.S. Federal Reserve to roll back its bond buying has shaken emerging markets, which have been supported by the Fed stimulus in recent years.

"We are projecting a 100 basis point hike to 17.0 percent but recognise that there is upside risk to this view, i.e. they could hike by more than 100 basis points," said Yvonne Mhango, research analyst at Renaissance Capital in Johannesburg.

Four other analysts echoed Mhango's view and some said the rise could be up to 200 basis points.

The current interest rate has been held three times since it was raised from 15 percent last May. But since then the cedi has depreciated 22.4 percent and inflation has climbed from 10.9 percent to 13.5 percent in December.

The government says strong dollar demand has weakened the currency but the rise in inflation is due mainly to the impact of subsidy cuts, which it says is short-term.

(Editing by Joe Bavier and Catherine Evans)