BoG cuts policy rate to 25% as inflation drops

In a major policy shift reflecting improving macroeconomic conditions, the Bank of Ghana (BoG) has slashed its benchmark Monetary Policy Rate by 300 basis points to 25.0 percent.

This decision, announced at the conclusion of the central bank’s 125th Monetary Policy Committee (MPC) meeting held from July 28–30, 2025, marks the first significant rate cut in recent years and signals growing confidence in Ghana’s economic recovery and inflation control.

A Turning Point Amid Global Uncertainty

The BoG’s decision comes at a time when the global economic environment remains uncertain.

According to the International Monetary Fund (IMF), global growth is projected to slow to 3.0 percent in 2025 from 3.3 percent in 2024.

Heightened geopolitical tensions, persistent trade policy disputes, and slower-than-expected global disinflation have created external risks, particularly for emerging economies like Ghana.

Despite these challenges, the BoG maintains that Ghana’s improving domestic fundamentals are cushioning the country from global headwinds.

Domestic Growth Outpaces Expectations

Domestically, the Ghanaian economy showed strong momentum in the first quarter of 2025, with a real GDP growth rate of 5.3 percent—up from 4.9 percent in the same period in 2024.

Notably, non-oil GDP expanded by 6.8 percent, driven by robust activity in agriculture and services.

Real sector indicators from the BoG also showed continued improvement, with the Composite Index of Economic Activity (CIEA) increasing by 4.4 percent in May 2025, compared to 3.4 percent a year prior.

The boost was supported by higher international trade, construction activity, consumption, and tourist arrivals. Business and consumer confidence also improved, reflecting optimism around the easing of inflation.

Inflation Drop

Perhaps the biggest driver behind the policy rate cut is the sharp decline in inflation.

Headline inflation fell to 13.7 percent in June 2025 from 18.4 percent in May—marking the lowest level since December 2021.

According to the MPC, the drop was due to a combination of tight monetary policy, fiscal consolidation, improved food supply chains, and a significantly stronger cedi.

Core inflation, which excludes volatile energy and utility prices, also declined, and inflation expectations among consumers and businesses are now broadly anchored.

Fiscal Discipline and Debt Reduction

The government’s fiscal stance was another key factor in the BoG’s policy decision.

According to budget execution data, Ghana outperformed its fiscal deficit target for the first half of 2025, recording a deficit of 0.7 percent of GDP—well below the projected 1.8 percent.

This was achieved by reducing expenditures to align with revenue shortfalls and limiting borrowing.

As a result, the country’s total public debt dropped sharply to 43.8 percent of GDP by end-June 2025 from 61.8 percent at the end of 2024.

This was largely driven by cedi appreciation, lower domestic borrowing, and progress in external debt restructuring.

External Sector Surges, Cedi Appreciates Strongly

Ghana’s external sector also showed impressive gains.

The current account registered a surplus of US$3.4 billion in the first half of 2025, thanks to higher export prices and volumes for gold and cocoa.

The overall balance of payments surplus stood at US$2.2 billion, significantly surpassing the US$588.5 million recorded a year earlier.

This positive trend pushed Gross International Reserves up to US$11.1 billion, providing 4.8 months of import cover.

The strengthened external position underpinned a remarkable rally in the cedi, which appreciated by 40.7 percent against the U.S. dollar, 31.2 percent against the British pound, and 24.2 percent against the euro as of July 25, 2025.

Banking Sector Stability Reinforced

Ghana’s banking sector also continues to stabilize. Financial Soundness Indicators for the first half of 2025 showed strong asset growth, improved profitability, and lower non-performing loans.

The BoG credited these gains to improving macroeconomic conditions, capital injections by banks, and tighter credit risk management.

Outlook and Forward Guidance

Looking ahead, the MPC noted that inflation is expected to continue its downward trend into the third quarter and fall within the medium-term target band of 8±2 percent before the end of 2025—earlier than previously projected.

However, the Committee cautioned that upside risks remain, including potential global supply chain disruptions and possible hikes in utility tariffs.

Nonetheless, it expressed confidence that these could be mitigated by the current tight monetary policy and continued fiscal restraint.

“The Committee remains committed to the price stability mandate, while creating conditions for inclusive and sustainable growth,” the BoG stated in its concluding remarks.

Next Steps

The next MPC meeting is scheduled to begin on September 15, 2025, and will conclude with a policy announcement on September 17.

The Committee has hinted that further rate cuts could be on the table if the current disinflation trend continues.

The rate cut to 25.0 percent marks a critical turning point in Ghana’s post-COVID economic recovery, signaling a return to stability, renewed investor confidence, and the possibility of easing borrowing costs for households and businesses.