Ghana surprises with Africa’s first rate cut of 2024
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 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 cut was the first by an African central bank so far this year.
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.
“We think today’s cut will be followed by further aggressive easing over the coming months,” David Omojomolo, Africa Economist at Capital Economics, wrote in a note to clients. “Our forecast is the policy rate to be cut by another 500 basis points over the rest of the year to 24.0%,” he wrote.
Inflation ‘Still High’
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 on Jan. 19 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.
Even so, the governor said that policymakers are also aware that the country’s economy is growing below its potential.
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.
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 obligations and expects to secure an agreement with eurobond holders by the end of March.
