Ghana Central Bank Cuts Key Rate, Hints at Lower CPI Target

(Bloomberg) -- Ghana’s central bank unexpectedly cut its benchmark interest rate to a six-year low and said it may be time to consider a lower inflation target.

The Bank of Ghana reduced the rate by 100 basis points to 16 percent, Governor Ernest Addison told reporters Monday in the capital, Accra. That bucked the worldwide trend toward tightening and pushed the local currency close to the weakest on record.

Ghana Central Bank Cuts Key Rate, Hints at Lower CPI Target

With inflation forecast to remain inside the target band of 6 percent to 10 percent over the 24-month forecast horizon, it may be appropriate to consider lowering the range to contain price-growth expectations, Addison said.

“This may be the time to look at a new central point, or whether we could move it further downward toward a lower rate of inflation.” he said. “Our trade partners have inflation rates which are below 5 percent and closer to 2 percent. There might be a need to look at the medium-term inflation target in order to maintain the competitiveness of the Ghanaian economy.”

Consumer-price growth in the world’s second-biggest cocoa producer accelerated for the first time in four months in December.

“While the Bank of Ghana has reassured on its reformist intent by suggesting that it may lower its inflation target further in time, the reaction of the Ghana cedi exchange rate to this early-in-the year easing will likely determine the scope for any further cuts in 2019,” Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank Plc, said in an emailed note.

The cedi weakened 0.5 percent to 5.0194 per dollar at 12:55 p.m. in Accra. A close at this level would be the weakest on record.

What Our Economist Says: 


“The cut was earlier than expected given the risks to the cedi.  We also expected the delayed release of the rebased consumer-price index to give greater clarity about the trajectory of inflation. Lower transport prices should push down inflation further in the first quarter, and this is likely to have been a contributing factor for the decision to cut.” 

--Mark Bohlund, Bloomberg Economics

©2019 Bloomberg L.P.