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Ghana Monetary Policy July 2021

Ghana: Central Bank keeps rates unchanged in July

At its meeting on 21–23 July, the Monetary Policy Committee of the Bank of Ghana (BoG) decided to keep its policy rate at 13.50%, after surprising market analysts by lowering the rate by 100 basis points at its previous meeting.

The decision to stand pat largely reflected moderate price pressures: While inflation ticked up to 7.8% in June following May’s 14-month-low print of 7.5%, it nonetheless remained within the Bank’s target range of 6.0%–10.0%. Meanwhile, despite some hints of a continued economic recovery throughout Q2, the Bank reiterated the uncertainty regarding the economic outlook stemming from new Covid-19 variants. As such, it decided to leave its policy rate unchanged in order to continue supporting activity.

While the Bank of Ghana did not provide explicit guidance on future interest rate movements in the accompanying press release, the majority of our panelists see rates staying on hold at 13.50% in the latter half of the year.

However, Andrew Matheny, economist at Goldman Sachs, sees scope for further cuts ahead, commenting:

“Overall, we believe that the surprise to our forecast stems mostly from a shift from the BoG to a more cautious view on the fiscal position, where recent budget data has come in weaker than expected. Indeed, the Board appeared once again concerned about fiscal risks. Looking ahead, we forecast a cumulative cut of 200 basis points in the key policy rate, to a terminal rate of 11.50%. However, we now see risks to the timing of our forecast tilted toward more back-loaded easing, i.e., cuts being deferred from later this year into 2022, with the timing mainly dependent on the fiscal outlook and performance of the cedi.”

The next meeting is scheduled for 22–24 September, with the decision to be announced on 27 September.

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