Ghana Cuts Key Rate to Lowest Since 2015 as Inflation Slows

ACCRA (Capital Markets in Africa)- Ghana’s central bank reduced its key interest rate for a third straight meeting as consumer prices rose at the slowest rate in four years and the currency strengthened.

The Bank of Ghana cut the rate to 21 percent from 22.5 percent, Governor Ernest Addison told reporters Monday in Accra, the capital. That’s the lowest rate since early 2015. The median of nine economists’ estimates was for a cut to 21.5 percent.

Bank surveys on price growth “suggest dampening of underlying inflation pressures,” Addison said. The disinflation process “is still on going and this trend is likely to continue all through till the end of the third quarter.”

The central bank of West Africa’s biggest economy after Nigeria’s has cut the benchmark rate after inflation slowed from a record high in March last year and the currency recovers from an all-time low. The 91-day treasury bill rate, used by banks to determine their lending rates also eased 417 basis points since January to 12.6 percent on July 21. The government has vowed to boost growth from last year, when the economy expanded at its slowest rate in more than a quarter of a century.

Consumer-price growth slowed to 12.1 percent in June from a record 19.2 percent in March 2016. The lender sees price growth slowing into the target band of 6 percent to 10 percent in 2018.

Since falling to a record low to the dollar on March 2, the cedi has strengthened 7 percent to become Africa’s best-performing currency after Mozambique’s metical and Zambia’s kwacha in the period. It declined 0.2 percent to 4.43 by 1:30 p.m.

Before today’s decision, the central bank had cut the benchmark by 300 basis points this year, trailing the 420 basis-point decline in the 91-day Treasury bill rate.

“With the wide variation between where market interest rates are and where the policy rate is, maybe the Bank of Ghana was looking to accelerate the closure of that gap,” Razia Khan, the London-based head of Africa macroeconomic research at Standard Chartered Bank Plc, said by phone. “They are keen to stimulate private-sector credit growth.” It expanded 16.4 percent in May from a year earlier.

There are signs of improvement in the economy of Ghana, the world’s biggest cocoa producer after Ivory Coast, with gross domestic product expanding 6.6 percent in the first quarter, the most in almost three years, as new oil fields started pumping crude.