The central bank of Ghana announced a 50 basis points hike in its benchmark lending rate, raising it to 30%. The decision caught financial markets off-guard, as the central bank continues its ongoing efforts to stabilize the economy.
Ghana has been grappling with a multitude of economic challenges, including double-digit inflation, a weakened currency (the Cedi), and mounting public debt. In May and June, the annual inflation rate reached a staggering 42.5%, following a slight decline from 54% in December the previous year.
The central bank has been gradually increasing interest rates since late 2021, with only a few intermittent pauses in the cycle. The move comes as Accra seeks to mitigate the impact of defaulting on most of its debt repayments last year, necessitating relief from its lenders. As part of the strategy to stabilize the economy, Ghana secured a $3 billion bailout loan from the International Monetary Fund in May, given its status as a significant cocoa and oil producer.
However, the IMF bailout comes with stringent conditions, requiring the country to implement measures such as rigorous spending cuts, the elimination of subsidies, and improved tax collection.
While the decision to raise the key lending rate is aimed at controlling inflation and stabilizing the economy, it is likely to exert additional pressure on households and businesses already grappling with the high cost of living. Moreover, this move is expected to impact economic growth, as businesses may face challenges accessing credit at higher interest rates.
Ghanaian authorities are facing a delicate balancing act, as they work towards taming inflation and steering the country towards a path of sustainable economic growth. The future economic outlook for Ghana remains uncertain, as the nation navigates through these challenging times with the hope that the measures taken will yield positive results in the long run.