Ghana Surprises with Africa’s First Rate Cut in 2024

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The Bank of Ghana has implemented its first benchmark interest rate cut since 2021, aiming to stimulate the economy while anticipating a continued slowdown in inflation.

In its latest decision, the monetary policy committee reduced the key rate from 30% to 29%, marking the end of a pause that had been in effect since September. Surprisingly, only three out of ten economists surveyed by Bloomberg had predicted this move, with the majority expecting rates to remain unchanged.

Annual inflation decreased to a 21-month low of 23.2% in December, down from 26.4% the previous month. Governor Ernest Addison, speaking to reporters in Accra, stated that the disinflation process is expected to persist, with headline inflation projected to ease to 13% to 17% by the end of 2024, gradually returning to the medium-term target range of 6% to 10% by 2025.

Despite these optimistic forecasts, Governor Addison highlighted the potential upside risks to the inflation outlook, emphasizing the importance of strict implementation of the 2024 budget and maintaining a tight monetary policy stance to sustain the disinflation process.

The central bank’s decision represents the first interest rate cut by an African central bank this year. Following this move, the cedi weakened by 0.5% to 12.3361 against the dollar, while the nation’s dollar bonds maturing in 2032 experienced a slight increase to 43.83 cents on the dollar.

David Omojomolo, Africa Economist at Capital Economics, anticipates further aggressive easing in the coming months, forecasting a reduction of 500 basis points in the policy rate to 24.0% by the end of the year.

Governor Addison acknowledged that inflation remains high, indicating that the Monetary Policy Committee (MPC) refrained from a steeper cut due to ongoing challenges. He echoed sentiments expressed by the International Monetary Fund (IMF), which recommended maintaining a sufficiently high monetary policy stance to address price pressures.

However, policymakers are also cognizant of the economy’s below-potential growth. Balancing these concerns, the central bank aims to fulfill its mandate of controlling inflation while providing incentives for economic growth.

Ghana, the world’s second-largest cocoa producer, sought an IMF bailout in July 2022 amid a plunge in its dollar bonds and failed attempts to reassure investors about its debt repayment capabilities. After nearly a year, the IMF approved a $3 billion program, enabling the country to reorganize its $47 billion debt to ensure sustainability.

Ghana has reached an initial agreement with bilateral creditors to restructure its obligations and anticipates securing a deal with eurobond holders by the end of March. This strategic restructuring aims to address the country’s financial challenges and foster economic stability.