ACCRA Ghana's new central bank chief stands ready to vigorously defend price stability in the African oil producer, he said on Wednesday, but predicted inflation will slip back to single digits by mid-year.
In his first interview since taking office last week, Bank of Ghana Governor Henry Kofi Wampah said he also expects the cedi currency to remain "broadly stable" and is seeking powers for the central bank to punish those flouting foreign exchange restrictions.
He said the primary focus of his five-year term would be to keep prices under control in the West African nation, which started pumping oil three years ago.
"I intend to vigorously deal with all threats that would prevent us from achieving this target," the 58-year-old economist told Reuters.
"My legacy should be the achievement of our macro-economic stability objectives, stable inflation rates and broadly stable exchange rates."
Ghana's annual consumer price inflation hit 10 percent in February for the first time since June 2010, rising above the mid-point of the central bank's inflation targeting band two percentage points either side of 9 percent.
Speaking as part of a Reuters Africa Investment Summit, Wampah said it was too early to say what the central bank would decide at the next session of its rate committee in May.
"The rise in inflation we saw in February was temporary so events in the coming months will indicate what will unfold at the next meeting," he said.
After a cut to fuel subsidies, "there was a clear indication that inflation would go up at the end of the first quarter and will trend down by half year as the harvest season sets in, so we are not worried," he said.
Increased oil production this year should cushion Ghana against the risks of unfavorable commodities prices, he said.
Wampah said the cedi currency should remain "broadly stable" in 2013 versus last year: "There are seasonalities that might drive the currency to fluctuate but I don't believe we'll see the type of depreciation we had last year."
The cedi plunged nearly 18 percent in the first half of 2012 as imports rose to feed a booming economy, prompting the central bank to introduce banking and foreign exchange restrictions.
Wampah said the controls would remain in place for some time. The Bank of Ghana is seeking an amendment to foreign exchange regulations to allow it take punitive action against any infringement, he said.
"Our target is that by the end of this year, we will pass it through cabinet and then to parliament for passage because if you do that quickly it'd be able to address some of the constraints within the foreign exchange environment."
DEFICIT A MAJOR CHALLENGE
The cocoa, gold and oil exporter's budget deficit jumped to 12.1 percent last year, nearly double its 6.7 percent target, due to election spending and a shortfall in tax revenues.
President John Dramani Mahama's government unveiled plans last month to pare the deficit to 9 percent of gross domestic product (GDP) while achieving 8 percent economic growth.
It aims to restrain end-year inflation to 9 percent despite hiking state expenditure by 20 percent.
"One of the major challenges this year will be how we unwind the deficit," Wampah said. "For me, these targets are achievable if we work hard."
Wampah said there were plans to completely remove fuel and utility subsidies by the end of the year. He said Ghana must avoid any fiscal slippage this year so as to free resources for badly-needed infrastructure and reduce its public debt.
Ghana's total public debt rose by more than a fifth last year to $18.8 billion, versus $15.3 billion in 2011. Wampah said the debt portfolio was within internationally acceptable levels.
Once it has concluded consultations with banks, the central bank was planning to start publishing a formula for determining interest rates as part of steps to lower them.
"We are hoping to reach an agreement with the banks at our next quarterly meeting on the formula and we believe that will bring transparency in the determination of base rates," he said.
Ghanaian interest rates, mostly benchmarked to treasury bill rates, remain among the highest in Africa at between 24 and 30 percent. Wampah said plans for a reduction in government domestic borrowing would also push rates down.
"We are poised to see the rates down so that businesses will grow and offer job opportunities to our people," he added.
The central bank is also encouraging banks operating in Ghana to list on the Ghana Stock Exchange, he said, "because listing will lead to transparency in their operations and enhance accountability."
The central bank was ready to extend capital requirement deadlines for banks if they listed. "If it needs other considerations to be given them, we will do that, subject to government approval."
The central bank is also studying the application by South Africa's FirstRand (FSRJ.J) to acquire Ghana's Merchant Bank. FirstRand, South Africa's second largest bank, said in August it would pay $91 million for 75 percent of Merchant Bank.
"The transaction involves the possible injection of social security funds of Ghanaian workers into the new business so it is important that the stakeholders are widely consulted before we give approval," he said.
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(Reporting by Kwasi Kpodo; Editing by Daniel Flynn/Ruth Pitchford)