In December 2023, Ghana’s inflation dropped to 23.2%, a significant decline from the 26.4% reported in November 2023, according to Business Insider Africa. The annual rate of food inflation eased to 28.7% and the non-food inflation rate slowed to 18.7%. Locally produced items experienced 23.8% inflation, and imported had a rate of 21.9%.
Ghana's inflation rate has been steadily declining for the past five months. This is a significant improvement from the peak of 54.1% in December 2022. In December 2023, the rate stood at 23.2%, down from 26.4% in November.
This decline is raising hopes for a potential cut in the Bank of Ghana's benchmark policy rate. The rate has been held at a record high of 30% since July 2023, in an effort to tame inflation. Analysts believe that with the downward trend, the central bank may consider easing monetary policy soon.
The Bank of Ghana’s next monetary policy committee meeting is scheduled for January 29, 2024. This will be a key moment to watch, as the committee will decide whether to maintain, cut, or raise the policy.
The decline in inflation is the result of the central bank’s monetary policy implemented last November. The Bank of Ghana increased the cash reserve ratio from 8% to 15%, as this policy reduced the amount of money available for lending by mandating banks to hold a larger portion of their deposits as reserves.
Some experts caution that it is still too early to declare victory over inflation. They point to ongoing external pressures, such as the global rise in food and energy prices, as risks to the recent gains. Additionally, concerns remain about Ghana’s debt burden and the impact of potential interest rate hikes in major economies.
To be truthful, while inflation is heading downward, it is not the right time to cut interest rates. Yes, inflation is declining but its rate remains in the double-digits, and that’s a major problem. While a rate cut would stimulate economic growth and ease the burden on borrowers, it would definitely put upward pressure on inflation if not managed. That means it would be very easy for the Ghanaian economy to experience hyperinflation again in a matter of months if rates are cut.
The Ghanaian economy has suffered tremendously from the consequences of expansionary monetary policy. The Bank of Ghana injected a lot of money into the economy, commercial banks had a very low cash-reserve ratio, and engaged in unscrupulous lending practices. Cutting interest rates right now will make commercial banks engage in reckless lending practices again, granting loans to underwater borrowers for the sole sake of maximizing their profits. This, in turn, would an unsustainable economic expansion of the Ghanaian economy before a major downturn occurs. And the Ghanaian consumer and taxpayer will be the ones suffering the consequences of this downturn.
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