Ghana's central bank will likely keep its key lending rate at its current level of 15 percent in order to consolidate liquidity mopping and ward off inflationary pressures ahead of elections in December, analysts said.
The bank's Monetary Policy Committee (MPC) is expected to announce its rates decision on Wednesday after a three-day meeting beginning on Monday.
The bank has been pursuing liquidity tightening, hiking key interest rates and selling three-year and five-year government bonds to shore up the local currency, which dipped nearly 20 percent in the first half of the year.
Apart from the bonds and rate hikes, the central bank also reintroduced short-term bills, changed bank reserve requirements, and required 100 percent cedi cover for vostro balances -- held by local banks on behalf of foreign banks -- to help stabilize the cedi.
Reuters reports the cedi rebounded in July and has since recorded intermittent gains against the dollar, but consumer inflation, which has remained in single digits for more than two years, rose for the fifth month in a row to 9.5 percent in July.
Barclay Bank Ghana's Kobla Nyaletey said recent developments showed that the key goal of halting the rapid depreciation of the cedi had been achieved and that he expected the bank to hold the rate.
"Though inflation may continue to inch up, current market interest rates, at an average 23 percent, is adequate to achieve the monetary target of mopping excess liquidity from the market, check expansionary credit behaviour and provide support for the currency," Nyaletey said.
Economist Razia Khan of Standard Bank also expected the central bank could hold the rate, mainly on the cedi's rebound and over subscription of recent five-year bonds.
But upside inflation risks still remain, she said.
"Even though inflation remains in single digits, we are concerned about the outlook for CPI - the backdating of the public sector salary increase, the traditional surge in liquidity that we see in September, and the fact that CPI is currently held down by subsidies on fuel and utilities," Khan told Reuters.
Philippe de Pontet, Eurasia Group's director for Africa, said the rebound of the cedi was the key factor for a likely holding of the rate.
"Recent policy measures seem to have borne fruit on that front, and with inflation still in single digits, the most likely decision would probably be to hold the current rates, while keeping a watchful eye on the cedi as the December elections near," he added.
Nii Ampah-Sowah of the Accra-based Databank research think-tank said in addition to the cedi's current stability, the expected onset of favourable weather could ease upside risks.
"We expect things to be a lot calmer as favourable weather patterns kick in - for these reasons, we expect the MPC to maintain the policy rate at 15 percent," he said.
Economist Joe Abbey of the Centre for Policy Analysis, said he expected the central bank to hike the rate by 300 basis points as a "technical correction" to make the lending rate relevant to bond yields.
The cocoa and oil exporting West African nation will hold presidential and parliamentary elections in December and there are concerns from investors and donors that the government could further trigger inflation if it bows to widespread public sector wage demands and other expenditures not already earmarked in the 2012 budget.