Bank of Ghana on Wednesday lowered its benchmark lending rate by 150 basis points to 14 percent amid ongoing geopolitical tensions.
Central Bank Governor Johnson Asiama said during a bi-monthly Monetary Policy Committee (MPC) press briefing that despite the geopolitical tensions and passthrough effects of possible higher energy prices occasioned by the Middle East crisis, Ghana still has enough room to lower the policy rate.
Asiama conceded that the global environment has changed drastically since January, largely due to the Middle East conflict, which has disrupted global supply chains, increased crude oil market volatility, rising financial stability concerns, and heightened global uncertainty.
Despite the global tension, the governor said the MPC expects headline inflation to remain broadly anchored in the medium term as the central bank continues to observe the trends for the necessary action when necessary.
He noted that inflation has declined faster with expectations well anchored to remain within the medium-term target of between 6.0 percent and 10 percent amid significantly improved macroeconomic conditions.
“The rising geopolitical tension in the Middle East has deepened uncertainty in the external sector. An upside risk to the inflation outlook includes the likely pass-through of higher crude oil prices and escalating geopolitical tensions,” the governor added.
Despite these upside risks to the inflation profile, Asiama said, “The favorable domestic macroeconomic conditions, and the high prevailing real interest rates, provide scope to ease the policy rate further. Consequently, the MPC decided to reduce the monetary policy rate by 150 basis points to 14 percent.”
On the domestic front, the governor stated that consumer confidence had improved on account of easing inflationary pressures and optimism about future economic conditions. “Similarly, business confidence strengthened on the realization of operational targets and optimism about industry prospects, amid improving macroeconomic conditions.”
On the potential impact of the Middle East crisis on the domestic and foreign exchange market, Asiama assured that “We’ve accrued enough reserves to support us to preserve the gains.”
In February, headline inflation declined further to 3.3 percent, marking the 14th consecutive decline in inflation from Jan. 2025.