Ghana: Bank of Ghana continues to hack away at policy rate in July
July 24, 2017
At its 24 July monetary policy meeting, the Bank of Ghana (BOG) cut the monetary policy rate by 150 basis points from 22.5% to 21.00%. The third rate cut in as many meetings marked a continuation of the easing policy which began towards the end of last year. The reduction was greater than markets had expected.
The Bank’s decision comes as inflation has been trending down almost uninterruptedly since September last year due to tight monetary policy, a fairly steady exchange rate and some favorable base effects, and is now approaching the Central Bank’s upper bound of 10.0%. In addition, core inflation, which excludes energy prices, has also been dropping in recent months, while inflation expectations are dipping too. This gave the Central Bank more room to loosen the monetary policy stance without stoking inflation. On the demand side, although the economy picked up speed in Q1, this was largely due to greater oil production, with the non-oil sector looking sluggish; the performance of the service sector in particular was nothing to write home about. Lower interest rates should help boost investment and consumption going forward.
The communique was devoid of forward guidance, with the BOG reiterating its aim of moving inflation towards its 6.0%–10.0% target range, which should occur in 2018 according to the Bank. FocusEconomics panelists concur, and expect inflation to be back within the target range by the back end of next year. With the downward trajectory of inflation set to continue, this should provide space for further monetary easing over the next year.
The next policy meeting is scheduled for 22 September 2017.
Author: Oliver Reynolds, Economist