- MPC reduces key interest rate by 100 basis points to 13.5%
- Inflation seen at center of target band by June, Addison says
Ghana’s central bank unexpectedly cut its benchmark interest rate to the lowest in more than nine years to support the recovery of the economy.null
The monetary policy committee reduced the rate to 13.5% from 14.5%, Governor Ernest Addison told reporters Monday in Accra, the capital. All four economists in a Bloomberg survey expected the rate to remain unchanged.
Ghana’s central bank, one of the first in sub-Saharan Africa to cut lending rates last year to shield the nation from the pandemic, is betting Monday’s unexpected move will support the nascent recovery in the $57 billion economy. While the 150 basis-point cut announced in March 2020 was the last monetary policy support it provided and output expanded at the slowest pace in 37 years, the West African economy still fared better than most of its peers, where gross domestic product contracted.
“It’s obvious the MPC was not confident in the 2020 growth rate and felt the need to do something to boost growth,” Patrick Asuming, a senior lecturer at the University of Ghana Business School, said by phone. “I don’t see any further rate cuts for the rest of the year– they will wait to see what others do.”
Economic activity has picked up strongly, even as new taxes that were implemented this month weighed on consumer and business confidence, Addison said. GDP could expand by 4.6% this year, according to the International Monetary Fund projections.
Inflation slowed to a 13-month low of 8.5% in April, moving close to the center of the central bank’s target range as food-cost growth eased. That’s after the rate was above the target band of 6% to 10% for most of the past year. The MPC expects the rate of price growth to reach the midpoint of the target range by June.
“A combination of favorable base effects and a relatively stable exchange rate will help to neutralize price increases expected from other segments like transport,” Ridle Markus, a Johannesburg-based Africa strategist at Absa Bank Ltd., said by phone. “I doubt they will cut further this year because if growth begins to pick up, inflation will rise and the exchange rate may come under pressure.”
Positive moves in the economy and on the direction of inflation, as well as the fact that the risks associated with last year’s election are over, gave the MPC room to bring down the policy rate to signal progress, Addison said.
The MPC flagged risks to the fiscal outlook. While lower interest rates could make it more difficult to attract capital to fund Ghana’s budget deficit, Addison said the influx of foreign investors in government debt means the rate is still attractive.
(By Ekow Dontoh and Moses Mozart Dzawu With assistance by Simbarashe Gumbo)