The Bank of Ghana’s policy rate has “lost its signalling power in the market,” according to economist Professor Godfred Bokpin, who argued that the central bank has kept borrowing costs artificially high despite inflation falling well below its target.

Speaking on Joy FM’s Super Morning Show on March 19, Prof. Bokpin noted that with headline inflation at just 3.3%, the Bank of Ghana’s policy rate of 14% is far out of step with market realities.

“You cannot have inflation as low as 3.3% and have your policy rate at 14%. It has lost its signalling power in the market,” he said bluntly.

Prof. Bokpin explained that while a rate cut is widely anticipated, the more pressing concern is how far behind the curve the central bank already is. He highlighted a paradox where the Government of Ghana is borrowing short-term from the market at rates lower than the Bank of Ghana’s own policy corridor.

“If the Central Bank believes that the economic turnaround evidenced by low inflation is systematic and predictable, their policy rate should have been in single digits by now,” he added.

Ghana’s headline inflation of 3.3% marks a dramatic decline from the hyperinflationary highs of over 50% during 2022 and 2023. The Bank of Ghana’s medium-term inflation target sits between 6% and 10%, meaning current inflation is already below the lower bound of the target range.

Prof. Bokpin further noted that the Bank of Ghana itself admitted in a recent Monetary Policy Committee press release that disinflation had progressed faster than anticipated, underscoring the misalignment between the policy rate and economic conditions.

The economist’s assessment comes in the wake of President Mahama’s comments that Ghana’s economy is resilient enough to withstand shocks from the ongoing Israel-US-Iran conflict.

Prof. Bokpin warned that without a policy rate recalibration, market participants could continue to face distortions in credit pricing, potentially slowing investment and economic activity.