The Bank of Ghana has cut interest rates by 200 basis points from 29% to 27% as inflation slowed in the country further in August 2024.
Governor Ernest Addison announced at a press briefing in Accra on Friday that the Monetary Policy Committee has reduced the key interest rate from 29% to 27%.
According to the country’s Central Bank Governor, inflation is projected to decline further, aligning with the central bank’s year-end target of 13% to 17%, and is expected to steadily approach the medium-term goal of 6% to 10% by the end of 2025, barring any unforeseen disruptions.
He noted that risks to the inflation outlook appear to be relatively balanced. Annual inflation has now slowed for five consecutive months to 20.4% in August, from 25.8% in March providing a reason for the recent MPR cut.
The “economy is doing well” and macroeconomic conditions have improved significantly, providing room for the steep cut, said Addison. Before Friday’s cut, the MPC had kept the rate at 29% since January to support the cedi and restrain price pressures.
Ghana’s GDP growth in Q2, 2024
Alongside slower inflation, Ghana also posted economic growth of 6.9% in the second quarter, up from 4.8% in the previous three months.
That was the strongest performance in five years and comes as it emerges from a lengthy debt restructuring after defaulting in 2022 and having to seek a $3 billion International Monetary Fund lifeline.
The industrial sector posted robust annual growth of 9.3% during the period, following a 6.8% expansion in the first quarter. Growth in the agriculture and services sectors also accelerated to 5.4% and 5.8%, respectively, compared to revised figures of 4.7% and 3.2%.
Despite challenges in the cocoa subsector, which contracted by 26.2% for the fourth consecutive quarter, the broader agricultural sector performed well.
The sector employs around 40% of the workforce. Ghana, the world’s second-largest cocoa producer, has experienced production declines due to unfavourable weather, disease outbreaks, input shortages, and cocoa bean smuggling.
Impact of slowing inflation on upcoming elections
- The rate cut comes ahead of the December 7 presidential elections, where Vice President Mahamudu Bawumia, the ruling New Patriotic Party’s candidate, is seen as an underdog against opposition leader John Dramani Mahama, amid public frustration over the economy and rising cost of living.
- The five-year high in GDP growth rate, along with inflation reaching its lowest level in over two years, will likely be welcome news for the ruling party as Ghanaians prepare to head to the polls later this year.