Bank of Ghana surprises with 100 basis point policy rate cut

Ghana's central bank on Monday surprised the market by cutting its main policy rate to 13.5 percent from 14.5 percent, saying inflation risks were muted in the near term.

Central Bank Governor Ernest Addison said during a news conference that consumer price inflation was expected to remain within the bank's target band of 8 percent plus or minus 2 percentage points over the next quarter after falling to 8.5 percent in April due to lower food price inflation.

"Risks to the inflation outlook remain muted in the near-term ...under these circumstances, the (Monetary Policy Committee) decided to lower the monetary policy rate by a hundred basis points," Addison said, adding that the bank will monitor inflationary pressure on rents and transport fares.

A Reuters poll of 12 analysts had expected the bank to keep the rate unchanged.

Razia Khan, head of research for Africa and Middle East at Standard Chartered said that the cut was unexpected given the recent pressure on inflation, largely stemming from fiscal policy measures aimed at reducing Ghana's deficit.

The deficit is seen at around 9.5 percent of gross domestic product in 2021.

"The 100 basis points cut reflects the Bank of Ghana's concerns about growth. We do not expect any further easing near-term," Khan said.

"Given careful management of foreign exchange supply in the recent past, the boost to foreign exchange reserves from earlier Eurobond issuance, and relatively weak demand, we do not expect the rate cut to impact foreign exchange in a meaningful way," she added.