Fitch Solutions predicts 7% policy rate cut by BoG in 2025

Fitch Solutions forecasts that the Bank of Ghana’s Monetary Policy Committee (MPC) will reduce the policy rate by 7% in 2025.

According to the agency, this reduction will be influenced by an anticipated average inflation rate of 16.2% in 2025, down from a projected 22.1% in 2024, due to improvements in Ghana’s foreign exchange market.

“We expect Ghana’s monetary easing cycle to extend into 2025, with the BoG lowering the key rate by an additional 700 basis points to 20% by year-end. We predict that inflation will average 16.2% in 2025, down from an expected 22.1% in 2024, partly due to enhancements in Ghana’s foreign exchange market,” Fitch Solutions stated.

“We believe that central banks in developed economies, especially the US Federal Reserve, will reduce interest rates throughout 2025, enabling the BoG to lower its rates without risking major capital outflows,” it added.

Fitch Solutions indicated that the risks to its policy rate forecast are skewed to the upside, noting that extended debt restructuring negotiations could dampen investor confidence and pressure the Cedi.

“This scenario could sustain elevated inflation risks, forcing the BoG to maintain higher rates for a longer period,” the agency noted.

Meanwhile, Fitch Solutions predicts a 2% policy rate cut in November during BoG’s final MPC press briefing for the year, bringing the policy rate down to 27%.

At the latest MPC meeting on July 26, central bank policymakers chose to keep the key rate at 29%, citing ‘uncertainty regarding the inflation path’ due to recent exchange rate weakness and rising fuel and utility prices.

“We anticipate the Bank of Ghana will reduce its benchmark policy rate by 200 basis points to 27% by the end of 2024. We foresee a 200bps cut at the final MPC meeting of the year in November, lowering the key rate to 27%. Although inflationary pressures are more persistent than the central bank would prefer, we expect a downward trend, with inflation falling below 20% by September,” Fitch Solutions remarked.

“We also expect the cedi to regain some of its losses from 2024, which will mitigate inflationary risks. Ghana began restructuring its Eurobonds in June and is likely to conclude the process in September. Post-restructuring, we expect improved investor sentiment towards Ghana, increasing demand for the cedi. These factors will create conditions conducive for a rate cut in November,” the agency added.

For the upcoming MPC press briefing by BoG in September, Fitch Solutions anticipates the Central Bank will leave the policy rate unchanged due to ongoing price pressures and robust economic activity, reducing the need for a more accommodative monetary policy stance

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