Ghana: Ghana Holds Interest Rate At 14 Percent As Inflation Risks Rise
[Daba Finance] Ghana's central bank kept its benchmark interest rate at 14% for a third straight meeting as policymakers weighed rising inflation against economic growth. The Monetary Policy Committee voted unanimously to hold the rate after its September meeting, as expected by economists.
The Bank of Ghana has maintained its benchmark interest rate at 14% for the third consecutive meeting, as policymakers grappled with rising inflation and economic growth. The Monetary Policy Committee unanimously decided to hold the rate after their September meeting, as economists had anticipated. Inflation rose to 5% in August, up from 4.6% in July, primarily due to non-food price pressures.
The Bank of Ghana stated that price pressures were still contained, but warned of risks from higher crude oil prices, utility tariffs, and global supply disruptions stemming from Iran and Ukraine conflicts. Inflation remained below the 11.5% rate recorded a year earlier. Borrowing conditions eased without further rate cuts, with the average bank lending rate falling to 15.9% in August from 24.2% a year ago.
The central bank reported that lenders remain profitable, liquid, and adequately capitalized, with improved asset quality. The Ghanaian economy expanded by 6% in the second quarter, compared to 6.6% a year earlier, driven by services, information and communications technology, and industry. Business and consumer sentiment also showed improvement.
Ghana's foreign reserves stood at approximately $12 billion as of September 22, sufficient to cover 4.5 months of imports. The Bank of Ghana now holds the policy rate at 14%, which is 9 percentage points above annual inflation. The next moves depend on whether rising fuel and utility costs push inflation higher or if price pressures remain contained as growth persists.
The central bank's decision to hold at 14% demonstrates the significant shift in its monetary stance. With inflation at 5%, there is a 9-percentage-point gap between inflation and the policy rate, keeping borrowing conditions tight in real terms, even after earlier rate reductions. Meanwhile, commercial lending rates have fallen to 15.9% from 24.2% a year ago, indicating that lower inflation and prior policy easing are already benefiting borrowers.
This makes the Bank of Ghana less inclined to cut rates again while external risks rise. Oil prices, utility tariffs, and food costs could further elevate inflation, especially if conflicts in the Middle East and Ukraine persistently impact energy and grain markets. The central bank also benefits from growth, as GDP expanded by 6% in the second quarter, indicating policymakers do not have an immediate need to reduce rates to support economic activity.
Reserves of about $12 billion provide an additional cushion against currency pressure and higher import costs. The central bank's primary concern is whether August's inflation increase is temporary or the onset of a new trend. If inflation continues to rise, the 14% rate provides the bank with room to maintain a hold. However, if pressures ease again, further cuts could be reconsidered.
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