Bank of Ghana Slashes Policy Rate to Boost Growth
The Bank of Ghana has lowered its benchmark policy rate by 250 basis points to 15.5 percent, the steepest cut since the easing cycle began and the lowest level since February 2022. The move, which followed the Monetary Policy Committee’s 128th regular meeting, signals a clear pivot from crisis-era stabilization toward supporting growth, while acknowledging that monetary conditions remain tight relative to current inflation trends.
Why the MPC Cut Rates
Governor Johnson Asiama said the decision, passed by majority vote, reflects the Committee’s assessment that inflation has declined faster than projected and that expectations remain well anchored. The latest cut extends a series of reductions that started in July 2025 after the policy rate peaked at 30 percent during the 2023 crisis. In roughly 18 months, cumulative easing now exceeds 1,450 basis points, outpacing market forecasts that had generally anticipated a smaller, 200-basis-point move at this meeting.
Inflation Back Within Target
After surging above 54 percent in December 2022, annual inflation has steadily fallen back into the central bank’s 6 to 10 percent target band. By October 2025, consumer price inflation had eased to around 8 percent, near the midpoint of the range. Authorities attribute the rapid improvement to a combination of tight monetary policy, fiscal consolidation, improved foreign exchange buffers, and a firmer cedi, alongside generally supportive commodity prices.
Looking ahead, headline inflation is expected to remain broadly within a 6 to 8 percent medium-term range. The MPC cautioned, however, that upside risks could stem from utility tariff adjustments and global commodity volatility. With inflation stabilized, policy priorities are gradually shifting toward reinforcing the disinflation gains while enabling a stronger recovery in the real economy, job creation, and more effective financial intermediation.
Still-Tight Stance, With a Growth Tilt
Despite the sizeable reduction, the governor underscored that monetary conditions remain restrictive in real terms, helping guard against a premature rebound in price pressures. The MPC noted that stronger growth expected in 2026 could introduce some demand-side pressures, but maintained that sustained macroeconomic gains will depend on disciplined fiscal policy, close policy coordination, and targeted agricultural measures to contain food inflation. The Committee emphasized vigilance given persistent global uncertainties and geopolitical risks.
Growth Momentum and Credit Transmission
Economic activity has strengthened, with real GDP expanding by about 6.1 percent in the first three quarters of 2025, compared with 5.8 percent over the same period in 2024. Growth is projected to remain solid into 2026, with the output gap narrowing. As policy easing works through the economy, borrowing costs have already begun to fall: average lending rates declined from around 30.25 percent to 20.45 percent over 2025. If the pass-through continues, analysts expect commercial lending rates to compress further toward the 17 to 20 percent range by mid-2026.
Business sentiment has improved alongside currency stability and declining inflation. Lower financing costs are expected to broaden access to credit for firms and households, bolstering investment and consumption. One private-sector voice described the decision as a strong signal that authorities aim to stimulate activity while safeguarding hard-won stability.
Operational Shifts to Strengthen Transmission
To enhance liquidity management and sharpen the transmission of policy decisions, the central bank confirmed it will rely more on 14-day bills. The MPC reiterated that it will continue to monitor incoming data closely and stands ready to adjust its stance to ensure that macroeconomic stability translates into durable, inclusive growth.
External Buffers and Fiscal Outlook
Ghana’s recovery has been supported by ongoing reform efforts and external financing that bolstered reserves and confidence. Gross international reserves rose to approximately 11.1 billion dollars by the end of June 2025, strengthening external buffers. The cedi appreciated by about 30 percent over the course of 2025, ranking among the year’s stronger currency performances globally.
On the fiscal side, the government projects a primary surplus of 1.5 percent of GDP in 2026, with the overall budget deficit narrowing to 2.2 percent from a projected 2.8 percent this year. Continued fiscal discipline remains a cornerstone of the policy mix, supporting the inflation outlook and creating space for lower interest rates to take root across the economy.
Outlook: Consolidating Stability, Enabling Growth
The policy rate cut underscores confidence that inflation is firmly on a downward trajectory and that expectations are anchored. With real rates still positive, the MPC has room to nurture growth without abandoning vigilance. Risks remain—particularly from potential utility price adjustments, commodity market swings, and global tensions—but the broader policy framework is oriented toward consolidating stability while enabling a stronger, more credit-friendly recovery in 2026.
As the easing cycle continues to filter through lending and investment decisions, the central bank’s focus will be on ensuring more effective transmission, supporting the financial system’s ability to extend credit, and coordinating with fiscal authorities to preserve hard-won gains. If these conditions hold, the latest cut to 15.5 percent could mark a pivotal step in Ghana’s transition from stabilization to sustainable, broad-based growth.
