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 monetary policy committee 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 fell 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 cedi weakened 0.5% to 12.3361 by 12:28 p.m. in Accra. The nation’s dollar bonds maturing in 2032 rose 0.25 cents to 43.83 cents on the dollar.
Addison said the MPC did not make a steeper cut because “we have not totally gotten out of the woods. So inflation is still high,” echoing comments made by the International Monetary Fund.
The fund, which agreed to disburse a second tranche of $600 million to Ghana under the country’s three-year bailout program, suggested the central bank should keep a “sufficiently high monetary policy stance” to combat price pressures.
The central bank is “watching the impact on the growth side and therefore we’re trying to manage two things: Sticking to our core mandate of bringing inflation down and at the same time being mindful of the need to give a little bit of incentive to the growth side,” he said.