Ghana sustains slowdown in inflation rate

Ghana has experienced a significant decline in its inflation rate, dropping to 26.4 per cent in November from 35.2 per cent in October, surpassing the 29 per cent forecast by the Bank of Ghana. This positive development has been largely attributed to a decrease in food prices, a base rate effect, and the aggressive monetary policy tightening measures implemented by the Bank of Ghana. Courage Boti, an Economist at GCB Capital, shared valuable insights on this matter. Boti expressed his satisfaction with the recent trend in inflation, highlighting the impact of various interventions such as the tight fiscal stance, the monetary policy tightening, and the zero-deficit financing memorandum. He emphasized that the current inflation rate allows for a positive real policy rate, enabling the Bank of Ghana to better manage inflation. Looking ahead, Boti predicted that inflation could end the year around 24.5 to 25 per cent and continue to decline into 2024, potentially reaching the mid-teens by the end of that year. However, he also acknowledged the presence of downside risks, including geopolitical tensions and vulnerabilities in the country's reserves. Boti underscored the importance of completing the first review of the IMF program to enhance the reserve position and mitigate potential shocks to the economy. Despite the positive outlook, Boti emphasized the challenges posed by high-interest rates, which can limit businesses' ability to borrow and invest. He noted that banks are currently hesitant to lend due to a high non-performing loan environment and uncertainties in the operating landscape. Consequently, many banks are directing their funds towards government securities rather than extending credit to the private sector. This trend has led to a contraction in loans to the private sector, hindering businesses' growth and job creation. Boti stressed the necessity of achieving stability in various economic indicators to restore confidence among banks and businesses, ultimately paving the way for increased lending and economic growth. While recognizing the trade-off between controlling inflation and supporting economic expansion, Boti highlighted the crucial role of policy support in stimulating growth and job creation. Despite the challenges posed by the current economic environment, Boti expressed optimism that with sustained efforts and the right policy interventions, Ghana could potentially return to its target inflation band of 6 to 10 per cent by mid-2025.