(Bloomberg) -- Ghana cut its benchmark interest rate to the lowest in four years as inflation is slowing toward the central bank’s target.
The Bank of Ghana reduced the rate by 200 basis points to 18 percent, Governor Ernest Addison told reporters in the capital, Accra, on Monday. Underlying inflation pressures are subdued and price growth is moving toward the 6 percent to 10 percent medium-term target, he said.
Lower borrowing costs may further boost expansion in Africa’s fastest-growing economy. While inflation at 10.6 percent in February still exceeded the target band, the rate has almost halved in the last two years and a stable cedi could help rein in price growth even further.
“There could be another 200 basis points in this cutting cycle,” said Celeste Fauconnier, an analyst at FirstRand Ltd.s’ Johannesburg-based Rand Merchant Bank unit. “They really need to stimulate the private sector and credit extension hasn’t really responded to the easing yet.”
The bank has lowered the key rate by 800 basis points since 2016. While growth in credit extended to the private sector has started to rebound from the record low it reached in August, the January rate of 11.7 percent is less than a quarter of what it was in 2014.
What Our Economists Say
“The BoG seems to have prioritized keeping the policy rate stable in real terms by cutting in tandem with the slowdown in inflation. The risk is that the high acceptance of price increases as something normal keeps Ghana’s inflation rate structurally higher than in peer countries. Ghana’s public investment in capital expenditure is already low at 3 percent of gross domestic product -- less than half of what Kenya has spent in recent years. The combination of sustained infrastructure bottlenecks and high acceptance of price increases is likely to keep Ghana’s inflation rate higher than peers over the medium term, impairing its competitiveness and reducing investment.”
Mark Bohlund, Bloomberg Economics
The cedi gained 0.1 percent to 4.4106 per dollar at 12:48 p.m. in Accra on Monday.
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