ACCRA, March 26 (Xinhua) -- Monetary authorities of Ghana on Monday announced a 200 basis point cut in its benchmark policy rate to 18 percent, down from 20 percent.
The decision, by the Monetary Policy Committee of the Bank of Ghana, was made possible due to subdued inflationary pressures and higher growth prospects, said Ernest Addison, governor of the central bank.
Headline inflation rate, which fell to 10.3 percent in January from December's 11.8 percent, rose slightly to 10.6 percent in February, Addison said, adding that the expectations for inflation remains on target -- 8.0 percent (plus or minus 2 percent) in the medium term by the end of the second quarter of 2018.
"The committee noted that the current inflation forecast provides the scope for monetary policy to realign interest rates, translate the disinflation gains achieved so far to the market, and reinforce the fiscal consolidation process by easing the burden of interest payments on the budget.
"Under these circumstances, the committee decided to reduce the monetary policy rate by 200 basis points to 18.0 percent," Addison said.
He expressed satisfaction that the disinflation process, which started last year, continued to firm up over the first two months of 2018, with significant moderation in price pressures.
"Growth prospects for 2018 remain positive and are expected to be supported by crude oil production, gradual recovery in the non-oil sector, and favorable business and consumer sentiments," the governor added.
The economy of Ghana grew by 6.6 percent, 9.0 percent and 9.3 percent in the first three quarters of last year respectively.
Although the pace of growth in economic activity, as reflected in the latest update of the bank's Composite Index of Economic Activities, showed some improvements, Addison said, this is still below potential for a number of reasons.
These include moderated credit growth due to high non-performing loans; tighter credit conditions; and corrections in the balance sheets of the banking sector.
The policy rate is the benchmark rate at which banks borrow from the central bank as a last resort, and is meant to guide commercial banks in fixing their lending rates.
With the latest cut, the policy rate has fallen a cumulative 700 basis points since January 2017.
The rate reduction is a manifestation of improvements in macroeconomic conditions in the country, banking consultant Nana Otuo Acheampong told Xinhua.
"It shows the economy is getting better," he said. "The interest rate is a direct reflection of the fundamentals."