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Ghana Monetary Policy January 2019

Ghana: Bank of Ghana unexpectedly cuts the key rate to 16.00% in January

At its three-day meeting concluding on 25 January, the Monetary Policy Committee (MPC) of the Bank of Ghana (BOG) cut its policy rate by 100 basis points to a five-year low of 16.00%. The decision followed three consecutive meetings with no change to the policy rate and caught market analysts by surprise due to still-high inflation and elevated downside risks to the cedi.

The Bank’s decision came against the backdrop of moderating inflationary pressures. Aside from the uptick to 9.4% in December (November: 9.3%), inflation has been steadily declining since 2016 thanks to lower non-food inflation, which has created room for policy easing. Furthermore, with inflation forecasted to remain within the Central Bank’s medium-term target range of 8.0% plus or minus 2.0 percentage points and risks to the inflation outlook well under control, the Bank hinted at lowering the inflation target rate at some point ahead. Ernest Addison, the Bank’s governor, stated that lowering the inflation target is required to contain price-growth expectations and maintain the competitiveness of the Ghanaian economy in the medium-term.

In its communiqué, the Bank also noted the sustained weakness of the cedi, which lost ground in 2018 due to a stronger U.S. dollar and elevated risk aversion to emerging market economies amid ongoing global trade conflicts. In addition, the cedi slipped against the U.S. dollar immediately following the announced rate cut, pushing it close to an all-time low on 28 January. Looking ahead, further cuts to the key policy rate are likely to be determined by both the ability of the cedi to keep its ground against the U.S. dollar, as well as by the trajectory of inflation in the first quarter of 2019.

The next MPC meeting is scheduled for 20–22 March, with the decision set to be released on 25 March.

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