Former Monetary Policy Committee (MPC) member, Dr. John Kwakye, is advocating for a reduction in the Bank of Ghana’s policy rate from its current 29% to 27%. Currently the Head of Research at the Institute of Economic Affairs (IEA), Dr. Kwakye has long argued that Ghana’s inflation is largely driven by supply-side factors, and raising the policy rate to weaken demand, only increases lending costs, hurting businesses.
The MPC is scheduled to meet this week, from September 24-27 to assess the state of the economy and set the policy rate. Many anticipate a reduction, as inflation has been gradually declining. Dr. Kwakye, however, expects a larger cut, urging a 200-basis-point drop.
In a social media post, Dr. Kwakye pointed out that the U.S. Federal Reserve has reduced its rate by 50 basis points, with South Africa also lowering its policy rate for the first time since 2020. “Americans are welcoming the Fed’s cut in its rate by 50 bassis ponts (0.5 percentage points) to 4.75-5.00%). We in Ghana are waiting on Bank of Ghana to slash its Policy Rate by at least 200 basis points (2.0 percentage points) from its astronomical level of 29.0% to below 27.0%.”
Despite these global trends, Ghana faces unique challenges. The cedi has depreciated by about 25% this year, and inflation fell only slightly in August from 20.9% to 20.4%.
With rising domestic borrowing through treasury bills, increasing interest rates on treasury bills, and upcoming election-related government spending, a substantial policy rate cut may be difficult, in The High Street Journal’s opinion. Furthermore, the International Monetary Fund (IMF) has advised the Bank of Ghana to maintain a tight monetary stance and enhance exchange rate flexibility to manage inflation effectively.
