Ghana’s monetary policy rate, currently at 27.0%, is the highest in Africa, according to the World Bank.
In its October 2024 Africa Pulse Report, the World Bank noted that the Bank of Ghana, along with other central banks, has maintained elevated interest rates to effectively manage inflation expectations and achieve a more stable trajectory towards their inflation targets.
“Central banks in countries that still have double-digit inflation and weakened domestic currencies (such as Angola, Nigeria, and Sierra Leone) will keep monetary policy rates higher for longer and, in fewer cases, they may increase their policy rates—particularly in countries where inflation rates still have not peaked.
Broadly, currency weakness, slow fiscal adjustment, and cost pressures are among the factors driving these countries to keep a tighter stance for a longer period.”
For instance, it said Ethiopia, Ghana, and Nigeria are among the worst performing in Africa this year, and their currencies continue weakening while demand for foreign exchange remains pressing.
Nonetheless, the World Bank pointed out that with an improving inflation outlook and stabilising currencies, some countries are likely to end their hiking cycle and start reducing monetary policy rates.
However, price stickiness and the need to anchor expectations and restore the ability to achieve targets may delay benchmark rate cuts.
In September 2024, the Bank of Ghana reduced its benchmark policy rate by 200 basis points to 27.0%, marking its second rate cut since 2021.
Prior to this, Fitch Solutions, a UK-based financial firm, had anticipated this move in August 2024, predicting that the Bank of Ghana would lower its policy rate by the same margin before the year ended.
While this decision met Fitch’s expectations, the firm noted that the significant depreciation of the cedi and the Bank of Ghana’s hawkish stance led them to revise their end-2024 forecast upward from 25.00%.