In a bid to bolster economic activity and counter the headwinds faced by Ghana’s economy, the Bank of Ghana (BoG) is expected to embark on an aggressive monetary easing cycle, according to a recent report by Fitch Solutions.
The renowned financial research firm forecasts a substantial cut of 550 basis points (5.5%) in the benchmark interest rate by year-end 2024, bringing it down to 22%. This move comes amidst a backdrop of lackluster growth, fiscal consolidation efforts, and the need for stimulus measures to revive the economy.
Subdued Growth Prospects
Ghana’s real GDP growth has been persistently below trend, primarily driven by the fiscal consolidation efforts undertaken as part of the International Monetary Fund (IMF) program. Faced with the challenges of fiscal austerity, the BoG is expected to take the reins and deploy monetary policy tools to stimulate economic activity. With growth remaining lackluster, the central bank’s decision to embark on a monetary easing cycle appears to be a well-calibrated response to address the persisting growth challenges.
Falling Inflationary Pressures
Another key factor driving the BoG’s monetary easing stance is the anticipated easing of inflationary pressures. Fitch Solutions predicts that inflation will continue its downward trajectory, averaging at 17.1% throughout 2024. This decline is expected to be underpinned by several factors, including high base effects, stability in the exchange rate, and a moderation in global energy prices. By the close of 2023, the report projects that inflation will reach 20.2%, setting the stage for further reductions in the benchmark interest rate.
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