… raising hopes of cheaper borrowing
By Ebenezer Chike Adjei NJOKU
The Bank of Ghana (BoG) has reduced its Monetary Policy Rate by 200 basis points to 27 percent, citing improvements in the country’s macroeconomic conditions.
This decision, announced by BoG Governor Dr. Ernest Addison, follows the 120th Monetary Policy Committee (MPC) meeting where members evaluated recent economic trends and forecasts.
Dr. Addison explained the reduction was made in light of easing inflationary pressures and positive growth trends in the economy.
This comes as headline inflation has steadily declined over the past few months, falling from 22.8 percent in June to 20.4 percent for August 2024. This decrease was largely driven by a drop in food prices, with food inflation dipping to 19.1 percent in August from 24.0 percent in June. Non-food inflation also saw a slight reduction, contributing to the overall disinflation process.
“The disinflation process remains on track, supported by a tight monetary policy stance,” Dr. Addison stated during the press briefing.
He emphasised that the Bank’s efforts to stabilise inflation are yielding results, with core inflation – excluding energy and utility prices – falling to 19.4 percent for August from 22.1 percent in June.
The Governor highlighted that this sustained decline in inflation has helped improve business and consumer confidence, which is expected to support further economic growth.
Gross Domestic Product (GDP) growth in second quarter-2024 was stronger than anticipated, recording a 6.9 percent increase compared to 2.5 percent in the same period last year.
Dr. Addison also pointed to recovery of the exchange rate; noting that while the country faced significant currency depreciation in 2022, the situation has stabilised.
“We are recovering very quickly,” he said, adding that central bank interventions have helped restore stability in the foreign exchange market.
The Bank is optimistic about the inflation outlook, with projections indicating that inflation will ease toward a target range of 13 to 17 percent by end of the year. Barring any unexpected shocks, the MPC expects inflation will gradually return to the medium-term target of 6-10 percent by end-2025.
The development has raised hopes of widescale lower cost for funds. Businesses and households have been reeling from the impact of high interest rates – which have been well in excess of 30 percent over for the better part of three years. The Ghana Reference Rate for September 2024 stood at 29.31 percent.
Analyst Kwadwo Achaempong said the MPC has stepped cautiously, staying away from changing the MPR until there was ample reason to review downward.
The justification for a downward review of the rate is clear. What remains to be seen is how sustainable these are, he noted.
“The economy is still largely dependent on the fortunes of gold, oil and cocoa export revenue. Diversifying sources of export revenue remains key to economic strength and sustainability.
“The report is silent on receipts of revenue from taxes. The performance of tax revenue as well as controlled expenditure (in a high stakes election period as this) are critical to continued gains,” he said.
“In the short-term, the disinflationary trend is expected to continue. The year-end inflation and interest rates should hover around 17 percent and 19 percent (364-day T-bill rate) respectively. This should support a further increase in credit to the private sector for businesses to expand.
Cedi depreciation to the dollar may not be reined-in sufficiently, as demand for the dollar is sustained. It is expected to go to about 20 – 21 percent by year’s end, almost equalling 2023’s figure of 21.8 percent,” he added.
A small business owner, Osei Bonsu, who spoke to the B&FT following the announcement said: “I hope this translates to easier access to credit. I know it is too early to see the full effect, but I hope the cut serves not only as a signal but also an incentive for banks and other financial institutions to follow suit”.
