Ghana's central bank on Monday reduced its policy rate by 50 basis points to 25.5 percent from the 26-percent rate which had been in effect since November 2015.
This decision was made because the the central bank's Monetary Policy Committee (MPC) "concluded that the downside risks to growth outweigh the risks to inflation," Abdul-Nasiru Issahaku, governor of Bank of Ghana and MPC chairman, told the media after the 73rd MPC meeting.
He attributed the lower and positive inflation outlook largely to the tight credit conditions and the stability of the local currency, the Ghananian cedi.
In October, inflation declined to 15.8 percent year-on-year, compared with the 17.2 percent year-on-year in September, after peaking at 19.2 percent in March 2016. In the year to September, the cedi has depreciated by 4.3 percent, compared with the 15.5 percent recorded over the same period in 2015.
In two previous election years of 2012 and 2008, the cedi declined by 17.7 percent and 16.6 percent respectively, and in spite of the subdued inflationary trends, the tight credit conditions had also contributed to the lower growth trends, said Issahaku.
Issahaku said provisional data on government fiscal operations in the year to September showed a budget deficit of 5.9 percent of GDP, compared with a target of 3.9 percent of GDP.
"The downward review of the policy rate is justified and expected because some of the major contributors to inflation, including exchange rate volatility, have reduced," John Gatsi, economics lecturer at University of Cape Coast, told Xinhua via telephone.
The economist said it was important for the bank to send the right signal after maintaining such a high policy rate for a 12-month period.
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