Ghana: Bank of Ghana cuts policy rate for first time in five years in November
November 21, 2016
At its 18-21 November monetary policy meeting, the Bank of Ghana (BOG) decided to cut its monetary policy rate by 50 basis points, from 26.00% to 25.50%. The decision marked the first cut since June 2011 and signaled the start of an easing cycle. The decision met market expectations of a rate cut and came amid record low inflation: October’s reading was the lowest in more than two years.
The Bank commented that October’s inflation slowdown was mainly attributable to a decrease in the non-food category of the consumer price index (CPI). In addition, core inflation showed a significant decline, reflecting a broad-based easing of inflation pressure. The Bank further noted that, excluding the case of any major unexpected price shock, the inflation outlook will remain stable and inflation is expected to return to within the Bank’s medium-term objective of 8.0% plus/minus 2.0 percentage points in 2017.
Regarding the performance of the economy, the Bank stated that tight credit conditions and low prices for commodities have kept growth subdued throughout 2016. However, growth conditions are expected to show signs of improvement due to an expanding power sector and an increase in oil and gas production. Nevertheless, the necessary fiscal consolidation could weigh on Ghanaian growth prospects, especially in a low oil-price environment. The Bank also indicated that recent fiscal developments point to a wider-than-expected fiscal deficit in 2016.
The next policy meeting is scheduled for 20 January 2017.
Author: Andrea Vetrugno, Economist