GHANA’S central bank unexpectedly cut its benchmark interest rate to the lowest in more than nine years to support the recovery of the economy.
The monetary policy committee reduced the rate to 13.5 percent from 14.5 percent, Governor Ernest Addison told reporters on Monday in Accra, the capital. All four economists in a Bloomberg survey expected the rate to remain unchanged.
Ghana’s central bank was one of the first in sub-Saharan Africa that stepped in last year by cutting lending rates to shield the economy from the fallout of plunging oil prices and lockdowns to curb the spread of the Covid-19 pandemic. While the 150 basis-point cut announced in March 2020 was the last monetary policy support it provided and output expanded at the slowest pace in 37 years, the West African economy still fared better than most of its peers, where gross domestic product contracted.
Economic activity has picked up strongly, even as new taxes that were implemented this month weighed on consumer and business confidence, Addison said. GDP could expand by 4.6 percent this year, according to International Monetary Fund projections.
Inflation dropped to a 13-month low of 8.5 percent in April, moving close to the centre of the central bank’s target range as food-cost growth eased. That’s after the rate was above the target band of 6 percent to 10 percent for most of the past year. The MPC expects the rate of price growth to reach the midpoint of the target range by June.
Positive moves in the economy and on the direction of inflation, as well as the fact that the risks associated with last year’s election are over, gave the MPC room to bring down the policy rate to signal progress, Addison said.
The MPC flagged risks to the fiscal outlook. While lower interest rates could make it more difficult to attract capital to fund Ghana’s budget deficit, Addison said the influx of foreign investors in government debt means the rate is still attractive.