Ghana Central Bank May Cut Interest Rate to Record Low as Inflation Eases

Ghana’s central bank will probably cut its benchmark interest rate for a third meeting to a record low today after annual inflation slowed to the lowest level in more than 19 years.

The Bank of Ghana, based in the capital, Accra, may reduce the lending rate by half a percentage point to 12 percent, according to the median estimate of seven economists surveyed by Bloomberg. That would be the lowest level since the key rate was introduced in 2002. The decision will be announced at 11 a.m. local time.

“The central bank will opt to cut rates by 50 basis points, given the weak external environment, July’s benign inflation print, and lingering concerns over domestic credit growth,” Lisa Lewin, London-based head of sub-Saharan Africa analysis at Business Monitor International, said in an e-mailed note Aug. 24. “We expect inflation to be anchored by the harvest season over the coming months.”

The inflation rate in Ghana, the world’s second-biggest cocoa producer, dropped for a fifth month in July to 8.4 percent, the lowest since June 1992, as the effect of an increase in gasoline prices in January eased and a stable currency, the cedi, helped curb import costs, according to the country’s statistics agency.

“Inflation expectations are well anchored,” the central bank, led by Governor Kwesi Amissah-Arthur, said on July 6. “Businesses, consumers and financial institutions all had favorable expectations that inflation would slow down over the next six months.”

‘More Confidence’

Ghana’s economy expanded 23 percent in the first quarter from the year-ago period, following the start of oil production at the Jubilee field, West Africa’s biggest discovery of crude from an offshore field in a decade, according to the statistics office. The cedi was little changed at 1.5285 per dollar at 7 a.m. in Accra.

The quicker-than-expected easing of prices in West Africa’s second-biggest economy is easing pressure on policy makers and may lead to a bigger drop in the benchmark rate, some analysts said.

“Since the last monetary policy committee meeting, inflation has continued to decline and is now below the bank’s 9 percent projection for three consecutive months,” Leon Myburgh, a sub-Saharan Africa strategist at Citigroup Inc. in Johannesburg, said in an e-mailed note to clients Aug. 25. “These declines could give committee members more confidence to cut the policy rate by a larger margin, in our view, and decide for a 100 basis points cut.”

The central bank cut the policy rate four times between November 2009 and July 2010. It was kept on hold at 13.5 percent for three consecutive meetings before the bank reduced it by half a percentage point at the last two meetings.

Amissah-Arthur on July 6 said he’s concerned that domestic banks aren’t responding quickly enough to the cuts in the key interest rate. A joint committee was created to study the issue and make recommendations.

“The sluggish response of banks’ lending rates to policy rate adjustments remains a source of concern,” Amissah-Arthur said. The average lending rate of commercial banks fell by 10 basis points to 27.5 percent between January and May, he said.

To contact the reporter on this story: Moses Mozart Dzawu in Accra at

To contact the editor responsible for this story: Andrew J. Barden at

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