by Jerome Kuseh
Yesterday the minutes of a meeting of the US Federal Reserve officials held in July 28-29 was released with a mixed message. While most of the Fed thought that conditions were nearing the point when interest rates should be raised, there was concern that inflation was not rising to the Fed’s target and the global economy was still weak so there was still too much risk to raise the rates.
This meeting was held before China devalued the Yuan and oil prices have fallen since then, creating more deflationary pressures. It is therefore less likely that the Fed will raise interest rates in September.
As I explained in this post a hike in the interest rates will send commodity prices down and make investors less willing to invest in emerging markets as they fly to the safety of US debt. Thus a hike would be bad for Ghana. In fact the expectation that the Fed will raise interest rates sent gold to a 5-1/2 year low at the end of July. Gold has recovered since then and hit a one month high of $1,131.90 per ounce yesterday after the minutes showed that a hike in rates was unlikely in September.
Ghana is currently in an Extended Credit Facility programme with the IMF and is trying to meet a budget deficit target of 7.3% of GDP in 2015 after missing targets in 2014 and 2013. Falling crude oil prices, a failed cocoa crop and labour agitation continues to make the target more difficult so the recovery of gold prices will be welcome news for the government.