- Ghana Surprises With Africa’s First Rate Cut of 2024
- Monetary policy committee lowers key rate to 29% from 30%
- Inflation expected to ease to around 13% to 17% by year-end
The Bank of Ghana has implemented its first cut to the benchmark interest rate since 2021, aligning with its expectation of a continued slowdown in inflation while aiming to support economic growth. On Monday, 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. This move was anticipated by only three out of 10 economists surveyed by Bloomberg, with the majority expecting rates to remain unchanged.
In December, annual inflation eased to a 21-month low of 23.2%, down from the previous month's 26.4%. This adjustment stands out as the initial rate cut by an African central bank in the current year. Following the announcement, the nation's currency, the cedi, depreciated by 0.5% to 12.3361 by 12:28 p.m. in Accra. Concurrently, Ghana's dollar bonds maturing in 2032 experienced a 0.25 cent increase to 43.83 cents on the dollar.
Governor Addison explained that a more significant rate reduction was avoided due to lingering concerns, stating, "We have not totally gotten out of the woods. So inflation is still high," echoing sentiments expressed by the International Monetary Fund (IMF). The IMF, which recently approved a second tranche of $600 million for Ghana under a three-year bailout program, recommended maintaining a "sufficiently high monetary policy stance" to counter inflationary pressures.
While acknowledging the challenges posed by inflation, Addison highlighted policymakers' awareness of the economy operating below its potential. He emphasized the dual objectives of adhering to the core mandate of reducing inflation and concurrently providing incentives for economic growth.
Ghana, the world's second-largest cocoa producer, sought an IMF bailout in July 2022, subsequently gaining approval for a $3 billion program nearly a year later. The country is actively restructuring its $47 billion debt to ensure sustainability within the IMF program. With an in-principle agreement with bilateral creditors in place, Ghana anticipates reaching an agreement with eurobond holders by the end of March.
FX MARKETS
Traders anticipate a strengthening of Ghana's currency against the dollar in the upcoming weeks, while the Nigerian naira and Kenyan shilling are expected to weaken. Meanwhile, Uganda's shilling is projected to remain stable, according to market reports.
On the 19th Jan, the IMF Executive Board concluded the 2023 Article IV consultation and the initial review of Ghana's 36-month Extended Credit Facility arrangement. The approval of the first review paves the way for the immediate disbursement of SDR 451.4 million (approximately US$600 million).
The efforts of the authorities are yielding positive results, evident in the emerging signs of economic stabilization. The year 2023 has demonstrated resilient growth, accompanied by a decline in inflation, and notable improvements in both fiscal and external positions. Additionally, progress is underway in debt restructuring, with the completion of a domestic debt exchange during the summer and a recent agreement on the restructuring of official bilateral debt.
EUR/GHS remains volatile, but has somewhat gathered some support entering February.
