Bank of Ghana Cuts Policy Rate to 21.5% Amid Inflation Concerns
Accra, Ghana – The Bank of Ghana (BoG) has announced a significant reduction in its monetary policy rate, slashing it by 350 basis points (3.5%) to 21.5%. This decision, revealed at the 126th Monetary Policy Committee (MPC) press briefing on Wednesday, September 17th, aims to stimulate economic growth while navigating potential inflationary pressures.
Governor of the Bank of Ghana, Dr. Johnson Pandit Asiama, expressed optimism that inflation will reach the central bank's medium-term target of 8% ± 2% by the end of 2025. This projection comes despite looming risks associated with proposed utility tariff hikes by the Electricity Company of Ghana (ECG) and the Ghana Water Company Limited (GWCL).
ECG has proposed a substantial 225% increase in its distribution service charge, while GWCL seeks a 280% hike as part of consultations for the Multi-Year Tariff for 2025-2030. ECG argues the increase is crucial to prevent financial collapse and ensure reliable electricity supply. GWCL contends that the 280% increase is necessary to offset rising production costs stemming from illegal mining activities and water pollution.
Dr. Asiama acknowledged that these potential tariff adjustments could impact the disinflation process. However, he remains confident that current favorable macroeconomic conditions, coupled with proactive monetary policy measures, will maintain a downward trend in inflation.
The MPC's evaluation of recent economic developments and risk assessments for inflation and growth prospects led to the conclusion that headline inflation is expected to fall within the medium-term target range by the end of the fourth quarter of 2025. While acknowledging potential price pressures from utility tariff reviews, Dr. Asiama emphasized that maintaining an appropriate monetary policy stance, robust sterilization efforts, ongoing fiscal consolidation, and sufficient reserve buffers will support the disinflation process.
Key Takeaways:
- Bank of Ghana reduces monetary policy rate to 21.5%.
- Inflation targeted at 8% ± 2% by end of 2025.
- Utility tariff hikes pose potential inflationary risks.
- MPC confident in macroeconomic conditions and policy measures.