BoG cuts policy rate to 21.5% as inflation declines

The Bank of Ghana’s Monetary Policy Committee (MPC) has reduced the Monetary Policy Rate (MPR) by 350 basis points to 21.5 percent, the sharpest cut in years, following three days of deliberations at its 126th meetings held from September 15 to 17, 2025.

The decision, reached by a majority of the six-member committee, reflects growing confidence in Ghana’s disinflation process and improving economic fundamentals.

The central bank also announced a revision of the Net Open Position (NOP) of banks in foreign currency transactions, narrowing the limit from ±5 percent to between 0 and –10 percent, effective October 1, 2025.

This move is expected to improve liquidity management in the interbank market and strengthen exchange rate stability.

Background

The policy rate—currently the benchmark for lending in Ghana—has been tightened aggressively in recent years to combat runaway inflation that surged above 50 percent in 2022 amid currency depreciation, food supply shocks, and external pressures.

Since 2023, the Bank of Ghana has maintained a restrictive stance to anchor inflation expectations under the IMF-supported Post COVID-19 Programme for Economic Growth (PC-PEG).

However, the economic landscape has shifted significantly in 2025. Inflation has now decelerated for eight consecutive months, reaching 11.5 percent in August, the lowest in several years.

Growth has remained robust, with provisional GDP expanding 6.3 percent in the second quarter compared to 5.7 percent in the same period of 2024. Export earnings, particularly from gold and cocoa, have boosted the external sector, leading to a trade surplus of US$6.2 billion by August and international reserves equivalent to 4.5 months of import cover.

Members’ Perspectives

Although united on the need for a policy cut, MPC members expressed varying degrees of caution.

Member 1 argued that global conditions remain uncertain but domestic fundamentals—ranging from GDP growth to stronger reserves—provided “scope for a recalibration of the monetary policy stance.” He supported a 350bps cut alongside adjustments in banks’ NOP to reinforce the decision.

Member 2 cited resilient growth and sharp declines in food and non-food inflation, with businesses and consumers expressing optimism. While he acknowledged risks from potential utility tariff hikes and cedi pressures, he voted for the full 350bps reduction.

Member 3 was more cautious, preferring a smaller cut of 300bps to 22 percent, stressing that inflation was falling faster than anticipated and would likely reach the medium-term target earlier than projected.

Member 4 agreed with the disinflation outlook but warned of exchange rate pressures and possible tariff increases, voting for a 300bps cut.

Members 5 and 6 backed the larger 350bps reduction, arguing that the real interest rate gap had widened excessively, damaging the real sector, and that easing policy would stimulate private sector credit while sustaining growth momentum.

Risks and Outlook

Despite the positive macroeconomic indicators, the MPC flagged risks that could disrupt the disinflation path.

These include global trade policy uncertainty, possible upward adjustments in utility tariffs, and renewed pressures on the Ghana cedi.

Still, members concluded that the “downside risks outweigh the upside risks,” giving room to ease policy.

The MPC stressed that its decision aligns with broader efforts to restore economic stability, sustain fiscal consolidation, and promote credit expansion to the private sector. Analysts expect the cut to translate into lower lending rates in the coming months, potentially reducing borrowing costs for businesses and households.

The next MPC meeting is scheduled for November 2025, when the Committee will reassess macroeconomic conditions and determine whether further policy adjustments are warranted.