BoG Slashes Policy Rate by 300bps to Spur Cheaper Lending and Boost Economic Recovery-Ghana
The Bank of Ghana (BoG) has implemented a historic monetary policy shift by cutting its benchmark policy rate by 300 basis points, bringing it down to 25%. This move marks the largest rate reduction in the central bank’s history and is expected to significantly lower lending rates across the financial sector. The decision, made in response to falling inflation—now at 13.7%—aims to stimulate economic activity and ease the cost of credit, especially for small and medium-sized enterprises (SMEs).
John Awuah, CEO of the Ghana Association of Banks (GAB), welcomed the move, stating that it aligns with the banking sector’s expectations and should result in lower interest rates across commercial banks. He explained that the Ghana Reference Rate (GRR), which plays a key role in determining market lending rates, is likely to reflect the policy cut when it is updated on August 6, 2025. Lending rates, which currently hover between 20–23%, are projected to drop noticeably.
However, Awuah also highlighted the need for better alignment between various market rates. He noted a disconnect between the policy rate, the open market operations rate (9.5%), and treasury bill yields (about 10%), suggesting a need for synchronisation to ensure that credit markets function more effectively. He emphasized that aligning these rates would give investors and borrowers confidence in the central bank’s policy direction.
Echoing these sentiments, economist Prof. Godfred Bokpin from the University of Ghana commended the policy cut but stressed the need for stronger coordination between fiscal and monetary policy. While he acknowledged the reduction as a step in the right direction for economic recovery, he noted that the central bank’s previous reluctance to reduce rates had created a lag between falling inflation and high borrowing costs. Bokpin had anticipated a more aggressive 500bps cut but believes the 300bps reduction is still impactful.
Despite the positive outlook, Prof. Bokpin warned that other tightening measures, such as tiered reserve requirements and high reserve ratios—sometimes up to 25%—could blunt the effect of the policy change. He advised that broader structural adjustments are needed to truly unlock affordable credit, especially for the private sector. As inflation continues to decline, more rate cuts could follow, possibly bringing the policy rate below 11% in the near future.
Source: Graphic