The Monetary Policy Committee (MPC) on Friday cut the prime rate by 50 basis points from 18.5 per cent to 18 percent.
The move was motivated by signs of stabilisation in prices and strong performance of the cedi against major trading currencies.
"The monetary and fiscal policy framework is working and gradually placing the economy back on a path of disinflation," Mr. Kwesi B. Amissah-Arthur, Chairman of MPC, told a press conference after a meeting in Accra.
"There are signs of stabilisation in prices and the foreign exchange market. Inflation is trending downwards and consumer price inflation has recorded four consecutive declines while core inflation is also on the decline," he said.
The MPC reviewed the macro-economic situation against the background of developments in the global economy, assessment of the pace of domestic economic growth, the execution of the 2009 Budget and the outlook for inflation.
Mr. Amissah-Arthur, who is also Governor of the Central Bank, said indications were that inflation would continue to ease and fall within the upper part of the target range of 14.5 per cent to 17.5 per cent by the end of December 2009.
"Looking ahead, inflation is likely to return to the target range of seven to 11 per cent by the end of December, 2010,"he said.
Mr. Amissah-Arthur said while policies were working to enhance the disinflation process and bring inflation within the target range over the
medium term, there was the need to complement the process by stemming the slowdown in output growth appropriately positioning the policy rate.
The Bank of Ghana Composite Index of Economic Activity suggests further slowdown in the growth of output in the economy.
This is supported by the slowdown in credit to the private sector, tightness in bank credit conditions and reflected in lower domestic Value
Added Tax collections.