Bank of Ghana Cuts Policy Rate to 18% Amid Falling Inflation and Strong Economic Recovery
The Bank of Ghana (BoG) has cut its policy rate by 350 basis points to 18 percent, signaling a decisive shift toward supporting economic growth while maintaining price stability. The decision, reached during the Monetary Policy Committee’s (MPC) last meeting of 2025, was influenced by the sharp decline in inflation—from 23.8 percent in December 2024 to 8 percent in October 2025. MPC members highlighted that this broad-based disinflation, covering both food and non-food items, has eased expectations among businesses and households, creating room for monetary easing.
The committee cited the strong performance of the cedi as another key factor in the decision. The local currency appreciated 32.2 percent against the US dollar year-to-date, reducing imported inflation and exchange-rate risks. Ghana’s external sector also showed resilience, with a current account surplus, rising reserves of US$11.4 billion (equivalent to 4.8 months of import cover), and a balance of payments surplus of US$1.8 billion. Strong gold and cocoa exports further strengthened the country’s ability to withstand external shocks.
Domestically, Ghana’s economy is gaining momentum. GDP growth reached 6.3 percent in the second quarter of 2025, while the Composite Index of Economic Activity expanded by 9.6 percent in September. Positive business and consumer confidence surveys indicate growing optimism about economic prospects. However, persistently high real interest rates of 13–14 percent have constrained borrowing, prompting MPC members to recommend the rate cut to better align lending costs with the current macroeconomic environment and encourage credit expansion.
Individual MPC members provided detailed reasoning for the decision. They pointed to faster-than-expected disinflation, robust foreign reserves, and improved transparency in the foreign exchange market. While global uncertainties such as trade tensions and fluctuating oil prices remain, domestic fundamentals—fiscal consolidation, rising reserves, and banking sector stability—supported the easing stance. Several members also indicated that further policy rate adjustments could be considered if inflation continues to decline toward 5–6 percent by early 2026.
The cut to 18 percent reflects a careful balancing act by the Bank of Ghana: fostering economic growth while keeping inflation under control. Analysts suggest that the decision is likely to encourage private-sector investment, reduce borrowing costs, and support the ongoing recovery of the Ghanaian economy. With inflation on a sustained downward trajectory and the cedi maintaining strength, the BoG appears positioned to gradually shift toward a growth-oriented monetary policy in 2026.
source: citi newsroom