The Bank of Ghana (BoG) has maintained its policy interest rate at 17 percent on Monday, as expected by analysts. Reuters reported the BoG Governor Ernest Addison to have said that the Bank made the decision mindful of possible inflationary headwinds as the dollar strengthened and also help to cushion any spillover effect from fuel price increases.
The BOG reduced the policy interest rate from a peak of 26 percent in November 2015 to 17 percent in May 2018 on the back of improving macroeconomic conditions and falling inflation expectations.
The central bank’s decision is coming after S&P Global Ratings raised Ghana’s long-term ratings on Ghana to ‘B’ from ‘B-‘ on improved monetary policy effectiveness. The ratings agency also affirmed the short-term foreign and local currency sovereign credit ratings of the West African country at ‘B’ and put its outlook as stable.
“Having peaked at a seven-year high of 19.2 percent (year-on-year) in March 2016, headline inflation has continued
to decline to 10 percent by mid-year 2018, supported by a relatively tight monetary policy stance.
“The upgrade reflects our assessment that Ghana’s monetary policy effectiveness has improved, albeit from a low base, and will support the credibility of the inflation-targeting framework over the period,” a report by the agency noted.
S&P, however, added that while the stable outlook balances Ghana’s fairly robust growth prospects, decreasing inflation, and narrower current account deficits against risks from still-high budget deficits and a high stock of public sector debt, the ratings could be lowered if Ghana’s economic growth is significantly lower than expected and policymaking effectiveness weakens.
Also, the ratings agency could further rate Ghana higher if the country implements and adheres to measures that materially alleviate pressures on public finances and reduce public debt levels beyond expectations, or the current account deficit narrows faster than expected and external debt and gross external financing needs are significantly reduced.