Ghana: BOG takes axe to policy rate for second consecutive month
May 22, 2017
At its 22 May monetary policy meeting, the Bank of Ghana (BOG) cut the monetary policy rate by 100 basis points from 23.5% to 22.5%, the second rate cut in as many meetings and marking a continuation of the easing policy which began towards the end of last year. The move was in line with analysts’ expectations.
The Bank’s decision comes soon after recently released figures which show the economy grew significantly less than expected in 2016 on the back of a fall in industrial production and a weak showing from the hydrocarbon sector. In addition, public spending growth is likely to be subdued this year as the government wrestles with a yawning budget deficit, with significant belt-tightening measures announced in the March budget. With monetary policy still painfully tight, a further loosening of the Bank’s stance should help buttress growth going forward. On the price side of the equation, although inflation ticked up marginally in April it has seen a sharp fall since the middle of last year, thanks in part to a more stable currency, giving the Bank more breathing room to reduce interest rates.
The communique was devoid of forward guidance, with the BOG reiterating its aim of moving inflation towards its 6.0%-10.0% target range in the medium term. FocusEconomics panelists largely concur, and expect average inflation to come in only a smidgeon above the upper band in 2018. With inflation’s downward trajectory likely to continue, there should be further scope for monetary easing going forward.
The next policy meeting is scheduled for 24 July 2017.
Author: Oliver Reynolds, Economist