Even as tensions in the Middle East threaten to push global oil prices higher and unsettle currencies, policy think tank IC Research believes the Bank of Ghana is still likely to cut the country’s monetary policy rate, but not aggressively.
The Central Bank is currently holding its 129th Monetary Policy Committee (MPC) meeting.
Ahead of the announcement of a policy decision, IC Research is projecting a carefully measured reduction in the policy rate. For IC Research, while the economy needs relief, risks on the horizon cannot be ignored.
This matters to the ordinary Ghanaians and businesses. Interest rates determine how expensive it is to borrow, from business loans to household loans. And right now, borrowing remains costly despite falling inflation.
Room to Cut, But Not Freely
IC Research argues that the Bank of Ghana has ample room to reduce rates. Inflation has dropped significantly, yet the policy rate remains high at 15.5%. In simple terms, money is still expensive, and this is slowing down economic activity.
Because of this, the think tank expects the central bank to ease rates by between 1% and 2%, with a stronger likelihood of a 1.5 percentage point cut, which would bring the rate down to about 14%.
Such a move would begin to make loans slightly cheaper, offering some relief to businesses struggling with high financing costs.
“Using the latest inflation print and the 15.5% nominal policy rate, we estimate a higher real policy rate at 12.2%, signaling ample scope for rate cut,” IC Research explained.
Why the Caution? Look Beyond Ghana
But IC Research is quick to warn that this is not the time for a bold policy rate. IC Research says the ongoing crisis in the Middle East is already pushing energy prices higher and strengthening the US dollar.
For Ghana, this combination is risky. Higher fuel prices can quickly translate into higher transport and food costs, while a stronger dollar can weaken the cedi and make imports more expensive.
In short, inflation, though currently low, could rise again if these global pressures persist.
“The geopolitical uncertainty in the Middle East is supporting energy price surge and a stronger US Dollar, warranting policy caution. We thus expect the MPC to retain a double-digit real rate with a measured easing bias, likely delivering between 100bps – 200bps cut with a leaning towards 150bps cut to 14.0%,” the IC Research’s prediction noted.
The Bottomline
This is why IC Research expects the central bank to remain “dovish” but careful, supporting growth without losing control of inflation.
IC Research’s outlook reflects a broader reality that Ghana’s economic recovery is gaining ground, but it remains vulnerable to forces beyond its borders.
The Bank of Ghana’s challenge now is to support the recovery at home without being blindsided by shocks abroad.
