The Bank of Ghana cut its benchmark interest rate for the first time since 2021, based on its outlook for inflation to keep slowing while seeking to support the economy.
The move shows Nigeria how inflation containment cannot be successful with disciplined policy implementation.
The monetary policy committee of Ghana on Monday lowered its key rate to 29% from 30%, ending a pause in place since September. Only three of 10 economists polled by Bloomberg predicted the move while the rest had seen rates staying on hold.
Annual inflation softened to a 21-month low in December of 23.2% from 26.4% a month earlier.
The latest forecast suggest that the disinflation process will continue and headline inflation is expected to ease to around 13% to 17% by the end of 2024, before gradually trending back to within the medium term target range of 6% to 10% by 2025,” Governor Ernest Addison told reporters in the capital, Accra.
These forecasts notwithstanding, there are upside risks to the inflation outlook and there is the need for strict implementation of the 2024 budget and a tight monetary policy stance to sustain the disinflation process,” he said. “The committee noted the emerging recovery, but sees the need to maintain a strong policy stance to consolidate the disinflation gains.”
The cut was the first by an African central bank so far this year,
The cedi fell slightly to 12.31 per dollar by 11:52 a.m. in Accra. The nation’s dollar bonds maturing in 2032 rose 0.25 cents to 43.83 cents on the dollar.
IMF Caution
The move comes as the International Monetary Fund, which agreed on Jan. 19 to disburse a second tranche of $600 million to Ghana under the country’s three-year bailout program, suggested inflation is still too high and the central bank should keep a “sufficiently high monetary policy stance.”
The world’s second-largest cocoa producer approached the IMF for a bailout in July 2022 after its dollar bonds plunged and spending cuts failed to convince investors it will be able to repay debt.
Almost a year later, the Washington-based lender approved the $3 billion program. The country is reorganizing almost all of its $47 billion debt to make it sustainable under the program.
The nation has an in-principle deal with bilateral creditors to restructure its debt and expects to secure an agreement with eurobond holders by the end of March.
