BoG slashes policy rate by 100 basis points to 29% amid disinflation

Dr. Ernest Addison, BoG Governor, Highlights Factors Behind the Decision at MPC Press Briefing
Dr. Ernest Addison, BoG Governor

In a move to address disinflation, the Monetary Policy Committee (MPC) of Ghana has announced a 100-basis point reduction in the policy rate, the rate at which the Central Bank lends to commercial banks. Dr , Governor of the (BoG), revealed this decision during the 116th MPC press briefing held in on Monday, January 29.

The policy rate is a crucial determinant for interest rates on loans to businesses by commercial banks, impacting the broader economic landscape. Dr Addison emphasized the significance of the reduction, citing the substantial decline in headline inflation by more than 30 percentage points throughout 2023.

Ghana's , which stood at 53.6 percent in January 2023, witnessed a remarkable decrease to 23 percent by December 2023. Dr Addison attributed this disinflation to various factors, including the tight monetary policy stance implemented in 2023, favourable international crude oil prices stabilizing ex-pump prices and transportation costs, and relative stability in the exchange rate.

The Governor shared the latest forecast, predicting a continued disinflation process, with headline inflation expected to ease to approximately 13-17 percent by the end of 2024. Furthermore, the forecast outlined a gradual return to the medium-term target range of 6-10 percent by 2025. Dr Addison cautioned about potential upside risks to the inflation outlook, emphasizing the importance of strict implementation of the 2024 budget and maintaining a tight monetary policy stance.

Turning to the banking sector, he reported improvements in liquidity and profitability positions following the domestic debt restructuring. Dr Addison anticipates that early recapitalization and effective risk management by banks will contribute to overall stability and resilience in the banking sector, facilitating financial intermediation crucial for supporting economic recovery efforts.

Regarding domestic macroeconomic conditions, Dr Addison acknowledged a gradual recovery in economic activity, attributing it to positive outcomes from the () Extended Credit Facility (ECF) program. However, he highlighted that growth remains below potential, emphasizing the need for policy support, including supply-side interventions.

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