Ghana’s central bank maintained its benchmark interest rate at 29.5% on Monday, citing falling inflation as evidence that the country’s tight monetary policy and stable exchange rate were having the desired effect.
Because of rampant inflation and a significantly weakened cedi currency, the West African country is experiencing its worst economic crisis in a generation.
The number of items in the Consumer Price Index basket with inflation above 50% has decreased, according to Bank of Ghana Governor Ernest Addison, as evidence for his claim that headline inflation has decreased significantly since the beginning of the year.
Consumer inflation in Ghana slowed for the fourth consecutive month in April, to 41.2% year on year, after reaching a more than two-decade high of 54.1% in December.
The International Monetary Fund’s executive board approved a $3 billion, three-year support program for Ghana last week, providing an immediate disbursement of approximately $600 million and a possible exit from the crisis.
“While this development (IMF financing approval) is positive for the domestic economy, it is contingent on strong implementation of the fiscal and structural policies outlined in the program,” the central bank stated.
According to Leslie Dwight Mensah, an economist at Accra’s Institute for Fiscal Studies, the decision to keep the policy rate unchanged was expected.
“It corresponds to a conservative stance, which recognizes that while inflation may be heading downward for the rest of the year, it will be a long time before it returns to the official target band,” he said
The Bank of Ghana anticipates 8% inflation, with a 2% buffer on either side.
A new IMF program and an agreement between the central bank and the ministry of finance to prohibit deficit monetisation, which is good for monetary policy credibility, set the stage for the announcement.
