Ghana: Bank of Ghana slashes key interest rate to near eight-year low as global pandemic threatens growth
In an emergency meeting on 18 March, the Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) slashed its key policy rate by 150 basis points to 14.50%. The Bank’s move, which brought the rate to the lowest point since May 2012, was chiefly driven by mounting fears of a marked economic slowdown due to the fast-spreading Covid-19 pandemic and came against the backdrop of easing inflationary pressures.
The unexpected easing in monetary policy was chiefly prompted by rising fears that the global economy may be pushed into recessionary territory this year, thus severely curbing Ghanaian GDP growth. The decision was further supported by cooling domestic activity growth and subdued inflationary pressures in recent months: Inflation has been hovering below the midpoint of the Central Bank’s 6.0%–10.0% target band at the outset of this year (February: 7.8%; January: 7.8%). Moreover, the Bank deployed additional measures including lowering reserve requirements for commercial banks from 10.00% to 8.50% in order improve liquidity, as well as lowering the capital conservation buffer for lenders from 3.00% to 1.50%.
Looking forward, the Bank expects considerable economic turbulence in the months ahead as the coronavirus increasingly weighs on domestic and external activity. The BoG sees growth declining to 5.0% in 2020 in a baseline scenario, although it stressed that “in the worst-case scenario, GDP growth estimates could be halved to about 2.5%”. As a result, the Bank struck a somewhat bullish tone over the outlook committing to “not hesitate to convene an emergency meeting to deliberate on other measures, if required”, which hints at further interest rate cuts ahead.
The next MPC meeting is scheduled for 19–21 May, with the decision set to be released on 22 May.