The Bank of Ghana’s Monetary Policy Committee (MPC) has announced a significant reduction in the benchmark policy rate, cutting it by 350 basis points from 25% to 21.5%.
This marks the second major rate cut in 2025, as the central bank intensifies efforts to stimulate credit growth and support the country’s ongoing economic recovery.
Governor of the Bank, Dr. Johnson Asiama, made the announcement during a press briefing following the conclusion of the 126th MPC meeting held on Wednesday.
Reason for the Decision
He attributed the decision to a sustained decline in inflationary pressures and the expectation of continued fiscal consolidation.
“This policy adjustment reflects our confidence in the trajectory of macroeconomic reforms and the improving inflation outlook,” Dr. Asiama stated.
The latest rate cut follows a 300 basis point reduction in July, when the policy rate was lowered from 28% to 25%. Earlier in March, the central bank had raised the rate slightly from 27% to 28%, before holding it steady during the May meeting.
Inflation Trends and Currency Challenges
Ghana’s inflation has shown a sharp downward trend in recent months, falling to 11.5% year-on-year in August. The central bank projects that inflation will enter its target band of 6% to 10% before the end of the year, bolstering confidence in the effectiveness of its monetary policy stance.
However, the recent depreciation of the Ghanaian cedi has introduced new challenges. The currency fell by 15% against the U.S. dollar in the third quarter, making it the second-worst performer globally among those tracked by Bloomberg, behind only the Argentine peso. Despite this quarterly decline, the cedi remains up 20% year-to-date.
The depreciation has been largely attributed to increased demand for foreign exchange by companies settling import bills ahead of the year-end holiday season. This surge in dollar demand has placed pressure on Ghana’s foreign reserves, which declined to $10.7 billion at the end of August, down from $11.1 billion in June.
Balancing Growth and Stability
While the rate cut is expected to boost lending and investment, the central bank must carefully balance growth objectives with the need to maintain currency stability and manage external vulnerabilities.
The MPC’s decision underlines the delicate interplay between inflation control, exchange rate management, and economic stimulus. As Ghana navigates its recovery path, the central bank’s policy tools will remain critical in shaping the country’s macroeconomic outlook.
