The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) will hold its 123rd meeting starting March 24, 2025, to decide on the Policy Rate (PR). In the last two meetings, the committee maintained the PR at 27%, citing concerns over rising inflation. With the economy still facing significant challenges, including high inflation, currency instability, and high debt, the MPC faces a complex decision on whether to adjust the PR to stabilize the economy or foster growth.
Inflation in Ghana has remained stubbornly high, staying in the low twenties for over two years, well above the BoG’s target of 8%. The cedi has depreciated significantly, with a 28% drop in 2023, 19% in 2024, and further decline in 2025. Despite some economic growth, the country’s fiscal deficit remains above the target set by the Fiscal Responsibility Act, and the government faces considerable debt, with substantial arrears and a national debt standing at 61.8% of GDP by the end of 2024.
The Finance Minister recently presented Ghana’s 2025 Budget, which includes projections of a fiscal deficit of 4.1% of GDP, inflation at 11.9%, and economic growth at 4.0%. However, the economy remains fragile, and the central bank is caught between its mandate for price stability and its secondary goals of promoting exchange rate stability and growth. This dual mandate has been difficult to manage, with the Bank’s monetary tools, particularly the PR, playing a crucial role in stabilizing the economy amid fiscal policy shortcomings.
As the MPC meets, the decision on the PR is highly anticipated. Given the high inflation and vulnerability of the cedi, Dr. Kwakye suggests the MPC may raise the PR by 100 basis points to signal its commitment to controlling inflation. A hike in the PR would help anchor inflation expectations and manage supply-side inflation pressures. While the economy shows signs of recovery, addressing inflation and the currency challenges remains a priority, with both the Bank of Ghana and the government needing to align their monetary and fiscal policies for effective economic stabilization.
source: citi newsroom