According to Fitch Solutions, the Bank of Ghana (BoG) is set to begin a monetary easing cycle in the fourth quarter of 2023, with intentions to reduce the policy rate by 200 basis points (bps) to 27.50% by the end of the year.

This choice, as stated by fitch, is heavily impacted by the predicted moderation of inflation in the next months, indicating a bright future for Ghana’s economy.

“We anticipate that the BoG will commence a monetary easing cycle in Q4 2023, reducing the policy rate by 200 bps to reach 27.50% by the close of 2023. As consumer price growth continues to moderate throughout the second half of 2023, and driven by a stable exchange rate and high base effects, it is likely to fall below the central bank’s end-2023 inflation target of 29.0% around September-October 2023.”
Fitch Solutions

The forecasted decline in inflation, as estimated by Fitch Solutions, is expected to reach 20.2% by the end of 2023.

Fitch in its projections further noted that a reduction in the policy rate will have a cascading effect on lending rates, potentially lowering the cost of borrowing and stimulating economic growth.

Notably, despite the International Monetary Fund (IMF) previously stating that the Bank of Ghana would “continue tightening monetary policy” under the Extended Credit Facility, central bank policymakers opted to keep the benchmark interest rate unchanged at 29.50% during the May 2023 monetary policy committee (MPC) meeting.

This decision suggests that the Bank of Ghana’s tightening cycle, characterized by a series of policy rate hikes amounting to 1,500 bps since late 2021, has now reached its conclusion.

BoG Set To Keep Policy Rate Unchanged

Fitch Solutions anticipates that the Bank of Ghana will maintain the policy rate during its next Monetary Policy Committee meeting in July, citing the ongoing moderation of consumer price growth as a key factor influencing this decision.

According to Fitch, the easing of inflationary pressures in the months ahead, driven by factors such as decreasing transport and utility costs due to lower global energy prices and a stronger exchange rate following the approval of Ghana’s Extended Credit Facility by the IMF’s executive board, will likely support the decision to keep the policy rate steady.

Fitch Solutions further highlighted the expected reduction in price pressures resulting from a pause in monetary financing of the fiscal deficit. This shift, it said, will help alleviate inflationary pressures in the coming months.

The Bank of Ghana has played a pivotal role in plugging the wide budget shortfall, providing critical financial support to the government when access to international capital markets was limited in late 2021. This liquidity injection has led to a significant increase in broad money supply, which reached Ghc161.9 billion Ghanaian cedis ($13.8 billion) in April 2023, representing a substantial 53.9% rise compared to the previous year.