Bank of Ghana (BoG) has decided to reduce its Monetary Policy Rate by one percent.

This adjustment brings the reference rate used by commercial banks for lending down from 30 to 29 percent, marking the first decrease in six months.

The rate had remained at 30 percent since July 2023 as a measure to control inflation.

The move to lower the rate was influenced by factors such as a significant decline in inflation, a stable currency rate, and robust economic growth both domestically and globally, according to the Bank of Ghana's 116th monetary policy announcement.

Dr. Ernest Addison, the Governor, emphasised the central bank's commitment to monitoring developments and responding appropriately to mitigate potential risks to inflation.

The decision was welcomed by the business community and industry players who had advocated for a rate reduction to stimulate operational activities and enhance credit availability to the private sector.

“Headline inflation declined sharply by more than 30 percentage points in the course of 2023. Several factors have supported the disinflation process, namely the tightening monetary policy stance throughout 2023, favourable international crude oil prices, which led to stable ex-pump prices and transportation costs, and relative stability in the exchange rate. The latest forecast suggests that the disinflation process will continue, and headline inflation is expected to ease to around 13–17 percent by the end of 2024, before gradually trending back to within the medium-term target range of 6–10 percent by 2025.”

“These forecasts notwithstanding, there are upside risks to the inflation outlook and there is need for strict implementation of the 2024 budget and a tight monetary policy stance to sustain the disinflation process. The Committee noted the emerging recovery but sees the need to maintain a strong policy stance to consolidate the disinflation gains. Under these circumstances, the Committee decided to reduce the Monetary Policy Rate by 100 basis points to 29 percent.”

“On the domestic economic front, there are clear indications that the current macroeconomic framework being implemented with the IMF PCF programme is yielding positive results. The macroeconomic fundamentals have all trended in the right direction. Both headline and core inflation are declining and projected to desolate further. Inflation expectations seem well-anchored. Fiscal policy implementation is broadly in line with expectations.

“The current account balance is in surplus and will likely remain so in the near term. The foreign exchange build-up has been strong and should support the stable exchange rate outlook. The benchmark key interest rate indicator, the United One Day Treasury Bill Rate, also declined over a year in response to macroeconomic conditions,” he stated.