Ghana’s central bank has maintained its benchmark interest rate at 27.00% for the second consecutive meeting, signaling a cautious approach as the nation awaits detailed economic policy plans from the newly elected administration of President John Dramani Mahama. This decision comes amid heightened inflationary pressures and lingering economic challenges as Ghana seeks to recover from its worst financial crisis in decades.

Key Highlights from the Bank of Ghana’s Decision

Policy Rate Remains Unchanged

The Bank of Ghana (BoG) decided to keep its main interest rate at 27.00% during its latest Monetary Policy Committee meeting.

• Inflation Concerns: Ghana’s inflation rose to 23.8% in December 2024, the highest in eight months, driven primarily by surging food prices.
• Disinflation Outlook: BoG Governor Ernest Addison stated that while inflation remains well above the central bank’s target range of 6%-10%, it is expected to decline gradually, contingent on the implementation of strong fiscal consolidation measures.

Targeting Economic Stability

Governor Addison emphasized that the bank is closely monitoring the evolving macroeconomic environment.

• The decision to hold the rate reflects the central bank’s commitment to maintaining economic stability while awaiting clear guidance from the new government on its fiscal and economic priorities.
• The bank also noted the importance of sustained monetary and fiscal discipline to restore confidence in Ghana’s financial markets.

Economic Context: Emerging from a Crisis

Ghana’s economy, historically reliant on gold, cocoa, and oil exports, has faced significant headwinds over the past few years.

• External Debt Default: In December 2022, Ghana defaulted on most of its external debt, marking the start of a severe economic crisis.
• IMF Loan Programme: A $3 billion bailout package from the International Monetary Fund (IMF) was secured to stabilize the economy and support structural reforms.
• Currency Depreciation: The Ghanaian cedi has experienced substantial depreciation, exacerbating inflationary pressures and reducing purchasing power.

Inflation Trends and Monetary Policy Challenges

Current Inflation Dynamics

• Food Prices: Elevated food prices have been the primary driver of inflation, particularly during the last quarter of 2024.
• Global Influences: External factors, including volatile commodity prices and currency depreciation, have contributed to rising costs for imports.

Inflation Targets

The central bank’s inflation target is set at 8% ± 2 percentage points. However, the latest forecasts suggest it will take longer than anticipated for inflation to return to this range.

• The BoG has implemented a combination of monetary tightening and foreign exchange interventions to manage inflation, but the effects have been slow to materialize.

The Role of the New Administration

President Mahama’s Economic Mandate

President John Dramani Mahama, who returned to power in December 2024 after a political comeback, faces mounting pressure to address Ghana’s economic challenges.

• Job Creation: A central pillar of Mahama’s campaign was a commitment to create jobs and alleviate economic hardship.
• Fiscal Consolidation: The new administration is expected to focus on reducing the fiscal deficit and managing public debt levels.

Provisional Budget and Policy Uncertainty

• Parliamentary Action: Ghana’s parliament passed a provisional budget in early January 2025 to avoid a government shutdown, but a comprehensive budget and policy statement are still pending.
• Policy Roadmap: The lack of a detailed economic roadmap has made it challenging for the central bank to align its monetary policy with fiscal objectives.

Sectoral Impacts and Broader Implications

1. Agriculture and Food Security

The rise in food prices has underscored the need for greater investment in agriculture.

• Ghana’s reliance on food imports makes it vulnerable to global price fluctuations.
• Strengthening domestic food production could help stabilize prices and reduce inflationary pressures.

2. Foreign Exchange Stability

The cedi’s volatility remains a significant concern for businesses and consumers alike.

• The central bank’s interventions in the foreign exchange market have provided some stability, but sustained improvement will require structural reforms to boost export earnings and attract foreign investment.

3. Social and Economic Equity

Rising inflation has disproportionately affected low-income households, highlighting the need for targeted social safety nets.

• Addressing income inequality and improving access to affordable credit will be crucial for fostering inclusive growth.

Global and Regional Context

Ghana’s Position in Africa

• As one of Africa’s leading gold and cocoa producers, Ghana holds a strategic position in the region.
• The country’s recovery is closely watched as a potential blueprint for other nations facing similar economic challenges.

IMF Programme in Focus

The IMF’s involvement has provided Ghana with much-needed financial support, but it has also come with stringent conditions.

• The success of the IMF programme will depend on the government’s ability to implement reforms while balancing the needs of its citizens.

Opportunities and Challenges Ahead

Opportunities for Growth

• Diversification: Reducing dependence on traditional exports by fostering growth in manufacturing, technology, and services.
• Green Initiatives: Leveraging Ghana’s renewable energy potential to attract investment and promote sustainable development.

Challenges to Overcome

• Debt Management: Ensuring that public debt levels remain sustainable while funding critical infrastructure projects.
• Policy Coordination: Aligning monetary and fiscal policies to achieve macroeconomic stability.

Conclusion

Ghana’s decision to hold its policy rate at 27.00% reflects the central bank’s cautious approach in a time of uncertainty. As the country awaits the new government’s economic policy plans, the focus remains on stabilizing inflation, supporting growth, and rebuilding investor confidence.

The path forward will require decisive action from both the central bank and the government. By prioritizing fiscal discipline, structural reforms, and inclusive growth, Ghana can navigate its current challenges and lay the foundation for a more resilient and prosperous future.

The coming months will be critical in shaping Ghana’s economic trajectory, as policymakers and stakeholders work together to restore stability and unlock the nation’s full potential.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

28^th January, 2025