Bank of Ghana should cut policy rate sharply if 3.8% inflation is accurate – Domfe

The Bank of Ghana should significantly reduce its policy rate if inflation has genuinely dropped to 3.8%, development economist Dr George Domfe has said.

According to him, maintaining high borrowing costs when inflation has fallen risks stifling credit, business expansion and job creation.

Speaking on the Asaase Breakfast Show on Thursday (5 February), Domfe argued that under the central bank’s inflation-targeting framework, policy rates must move in tandem with price levels.

“If inflation is truly 3.8%, then the current policy rate is too high. I expect the Bank of Ghana to bring it down significantly — possibly to single digits,” he said.

He explained that high policy rates translate into expensive loans, discouraging businesses and individuals from borrowing to invest.

“When lending rates are high, people don’t borrow, businesses don’t expand and unemployment rises,” he said.

Domfe noted that when inflation peaked above 50% in 2022, the central bank adopted a contractionary stance by raising policy rates to curb spending. Now, he said, the opposite approach is required.

“What we need now is expansionary monetary policy to make credit cheaper and stimulate growth,” he stated.

Lower rates, he added, would encourage entrepreneurs to start new ventures, expand operations and hire more workers.

“That’s how you deal with unemployment — by making money accessible,” he said.

But he stressed that any rate cuts must be backed by credible data.

“If the numbers are not accurate, then the policy response will also be wrong,” Domfe cautioned.