The Monetary Policy Committee of the Bank of Ghana has announced a substantial 100 basis points reduction in Ghana’s benchmark interest rate, shifting it from 30% to 29%. This unprecedented move not only breaks the rate freeze that has persisted since September 2023 but also stands as the first rate cut in Ghana since 2021, setting a unique precedent in the African financial realm for 2024.
The rate adjustment follows a significant dip in Ghana’s inflation, dropping to 23.2% in December 2023 from 26.2% in the previous month—a remarkable decline to levels not witnessed since April 2022.
Ernest Addison, the Governor of the Bank of Ghana, addressed reporters in Accra, shedding light on the motivation behind the decision. He expressed optimism about the ongoing disinflation process, projecting a further decrease in headline inflation to approximately 13% to 17% by the end of 2024. Addison emphasized the importance of maintaining a robust monetary policy stance and strict implementation of the 2024 budget to sustain the disinflation process.
However, Addison also cautioned about potential upside risks to the inflation outlook, emphasizing the need for a vigilant approach. “The committee noted the emerging recovery but sees the need to maintain a strong policy stance to consolidate the disinflation gains,” he stated.
Notably, the rate cut occurred just two weeks after Ghana received a $600 million disbursement from the International Monetary Fund (IMF), the second tranche of its $3 billion bailout program. Additionally, the World Bank recently approved a $300 million Development Policy Financing to aid Ghana in restoring fiscal sustainability and enhancing financial sector stability.
Looking ahead, the Central Bank of Nigeria is set to convene on February 26 and 27 to determine benchmark rates for Nigeria, which have been unchanged at 18.75% since July 2023. With Nigeria grappling with a generation-high inflation rate of 28.92% in December 2023, analysts anticipate a continuation of rate hikes, with some projecting a substantial 500-basis points increase.
In a separate development, Ghana’s dollar bonds experienced a surge after reaching an agreement with official creditors to restructure bilateral loans. Bonds maturing in 2035 saw a 1.2 cent increase to 43.97, trading above its 100-day moving average, while securities due in 2027 gained 0.7 cent, reaching the highest price since September 21. The positive market response was reflected in all 14 of the country’s bonds included in the Bloomberg EM Sovereign Total Return Index, signaling renewed confidence in Ghana’s financial outlook.
As Ghana navigates the complex terrain of economic recovery, the Central Bank’s bold move to cut interest rates adds a compelling chapter to the nation’s financial narrative, offering a glimmer of optimism for both local and international stakeholders.