The governor of Ghana’s central bank stated that the country’s economy is still recovering strongly and that inflation is continuing to decline, so the bank slashed its main interest rate by 200 basis points to 27%, marking its first rate reduction since January 2024.
Governor of the Bank of Ghana Ernest Addison stated at a press conference that economic indicators point to a proceeding disinflation and that price increases will continue to moderate in the direction of the short-term range target of 13% to 17% for the year.
“Such a strong signalling of the monetary policy rate by reducing it by 200 basis points tells you that the central bank is quite satisfied with the progress of recovery of this economy,” Addison said, adding that all economic indicators including growth, inflation and reserves are improving.
Addison stated that the move made by the Bank of Ghana corresponds to major advanced economies commencing their anticipated monetary loosening phase, which is being carried out in response to a decrease in inflation rates.
According to Reuters polled economists in July 2024, Ghana’s interest rate would drop by 200 basis points by year’s end.
“This easing of policy is understandable, given that the recent falls in inflation had caused real interest rates to rise, something that this cut will partially reverse,” Leslie Dwinght-Mensah, economist and research fellow at Accra-based Institute for Fiscal Studies said.
He continued by saying that the recent release of official data on the strong rate of economic activity gave the central bank the confidence to take this action.
“The Bank of Ghana also expressed confidence in fiscal policy being on track. This is unlikely therefore to pose a hurdle to November easing, should inflation continue to be well-behaved,” Razia Khan, chief economist for Africa and the Middle East at Standard Chartered said.
Ghana’s consumer inflation rate decreased from 20.9% to 20.4% year over year in July, but it is still significantly higher than the central bank’s medium-term target of 8% with a 2 percentage-point error margin.
As the country that produces gold, cocoa, and oil continues to emerge from its worst economic crisis in a generation, growth rebounded dramatically to 6.9% year-over-year in the second quarter of 2024, the fastest rate in five years. This growth was driven by expansion in several key sectors.