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The Bank of Ghana
on Friday cut its policy rate by a further 150 basis points to 13.5 per
cent, citing stable inflation prospects as grounds for pushing the key
rate down to its lowest level since January 2008.

The move was deeper
than market expectations and analysts were divided on whether one of
Africa’s leading investment destinations — which has seen a total 500
basis points of rate cuts since last November — would cut further.

“The anticipated
continued slowdown in inflation in the medium term, together with the
need to restore the growth process, provides scope for monetary policy
easing,” Bank of Ghana Governor Kwesi Amissah-Arthur told a news
conference.

Amissah-Arthur said
he expected inflation, which last month fell into single digits for the
first time in over four years, to remain around the Bank’s central
target of 9.2 per cent.

“Early indications
suggest that the pace of economic activity may have bottomed out and
has begun showing signs of picking up, an early indication of the
restoration of the growth process,” he added.

“The 150 basis
points is much more than we anticipated and we now think that the
easing cycle has come to its end. This should provide further stimulus
to the economy,” said Ridle Markus of Absa Capital.

However, Razia Kahn at Standard Chartered suggested further cuts were possible.

“One hundred and
fifty basis points when there was room to do more clearly signals a
more cautious approach … Markets may now move to price in the
likelihood of further, albeit moderate easing, as this remains a
possibility if inflation does not spike higher in the coming months,”
she noted.

Markus Schneider at
UBA Capital expected inflation to creep up from 9.52 percent in June to
11-12 percent by the end of the year, making further cuts “increasingly
unlikely, while Business Monitor’s Lisa Lewin said the Bank would
reverse some of the latest rate cut with a rate hike by end-2010.

Watershed

Several months
before it sees its first oil output from the Jubilee offshore field,
the Ghanaian economy may have reached a watershed after weak growth,
fiscal consolidation and a strong cedi currency have all firmly kept
the lid on inflation.

Recent cedi falls,
government spending and an expected take-off in growth from around five
percent this year to double digits in 2011 could combine with utility
tariff hikes and public sector wage increases to reverse that trend.

While the impact of
the initial production of 120,000 barrels per day from Jubilee is
likely to be modest, some Ghanaian officials see growth taking off to
20 per cent in 2011, one of the highest rates seen in the world.

Yet the figure is
being taken with a degree of caution, not least because a statistical
rebasing of the economy due to come into effect by year-end to reflect
the growing importance of high-growth sectors is also likely to affect
the figures.

Some analysts say the rebasing could lead to gross domestic product being revised upwards by as much as 50 per cent.