ACCRA- The Bank of Ghana surprised markets by hiking its main lending rate by 250 basis points to 17% on Monday, in hopes of slowing compounding inflationary pressures that threaten to ignite a debt crisis.
It is the bank's highest rate hike in more than 20 years, signalling an aggressive stance against rising inflation, a depreciating local currency and worsening investor confidence in the West African nation.
"The uncertainty surrouning price development and its impact on economic activity is weighing down business and consumer confidence," the bank's governor, Ernest Addison, said during a news conference. "The risks to inflation are on the upside."
A Reuters poll of 10 economists, carried out last week, suggested there would be a 100 basis point hike, but that there would also be no further rate hikes this year.
The bank cut its prime rate to 13.5% last May, its lowest level since early 2012, citing muted near-term inflation risks. But inflation has accelerated every month since, pushing the bank's Monetary Policy Committee (MPC) to bump the rate back to 14.5% four months later.
That was Ghana's first rate hike in more than three years. Monday's decision marks the first time that the bank has increased the prime rate twice in one year since 2015.
(Reporting by Christian Akorlie and Cooper Inveen; Editing by Aaron Ross)