The Bank of Ghana has reduced its Monetary Policy Rate by 200 basis points, bringing the rate down to 27%.
This decision was announced during the 120th Monetary Policy Committee (MPC) meeting on Friday, September 27, 2024 following a thorough assessment of global and domestic macro-economic developments.
The Governor of the Bank of Ghana, Dr. Ernest Addison, explained the rationale behind the rate cut, noting that the country’s macro-economic environment had improved significantly in recent months, particularly in the second quarter of 2024.
“The Committee’s decision was informed by positive developments in growth, inflation and the external sector.
“We are seeing a sustained improvement in key economic indicators and we believe that this rate cut will help reinforce those gains,” Dr. Addison stated.
Improved Growth Prospects
According to the Bank of Ghana, provisional data from the Ghana Statistical Service showed that real GDP grew by 6.9% in the second quarter of 2024, compared to 2.5% in the corresponding period in 2023.
The industry sector, which had contracted by 2.6% last year, rebounded strongly, growing by 9.3% while the services and agricultural sectors expanded by 5.8% and 5.4%, respectively.
“The growth we are witnessing is broad-based, driven by strong performances in key sectors like industry, services and agriculture,” Dr. Addison noted.
He added that the bank’s high-frequency indicators, including the Composite Index of Economic Activity (CIEA) also pointed to sustained growth in economic activity.
The CIEA recorded an annual growth of 1.6% in July 2024, compared to a contraction of 2.8% in the same period in 2023.
Disinflation Process on Track
Another key factor influencing the MPC’s decision to lower the policy rate was the progress made in reducing inflation.
Headline inflation fell to 20.4% in August 2024, down from 22.8% in June, driven primarily by a decrease in food inflation, which dropped to 19.1% in August from 24.0% in June.
“We have seen a consistent decline in inflation over the past few months, particularly in food prices.
“This is a clear indication that the disinflation process is on track, and we expect inflation to continue to ease toward our medium-term target,” Dr. Addison explained.
The Bank of Ghana’s core inflation measure, which excludes volatile items like energy and utilities, also eased to 19.4% in August from 22.1% in June.
Strong External Position
The MPC highlighted that Ghana’s external sector had strengthened significantly, with the country recording a trade surplus of $2.78 billion in the first eight months of 2024, compared to $1.66 billion in the same period in 2023.
The growth in gold and crude oil exports, which increased by 62.2% and 16.7%, respectively, played a critical role in boosting the country’s foreign exchange reserves.
“Ghana’s external payment position remains strong, with Gross International Reserves reaching $7.5 billion, equivalent to 3.4 months of import cover. This strong reserve position provides us with a cushion against external shocks,” the Governor remarked.
Outlook
Looking ahead, Dr. Addison expressed optimism about the country’s economic prospects, emphasizing that the reduction in the monetary policy rate would provide further support for economic recovery.
“The cut in the policy rate will help stimulate private sector credit growth and boost consumption and investment, ultimately supporting the broader economic recovery,” he said.
With inflation on a downward trajectory, strong external reserves, and robust GDP growth, the Bank of Ghana’s rate cut signals confidence in the country’s macroeconomic stability as it navigates the second half of 2024.
