The Bank of Ghana (BoG) has implemented its most aggressive monetary policy easing in recent years, slashing the policy rate by 350 basis points to 21.5 percent following sustained disinflation and robust economic growth indicators.
The decision, announced September 17 after the 126th Monetary Policy Committee (MPC) meetings held from September 15-17, exceeded market expectations with economists predicting a more conservative cut to 22 percent. Four out of six committee members supported the substantial reduction from the previous 25 percent rate.
The bold move comes as Ghana’s inflation rate declined to 11.5 percent in August from 12.1 percent in July 2025, marking the eighth consecutive month of disinflation and reaching levels not seen since 2021. This dramatic improvement from the peak inflation of over 40 percent in 2023 has created space for monetary authorities to provide relief to borrowers and stimulate private sector credit.
Economic growth momentum supported the committee’s confidence, with second quarter Gross Domestic Product (GDP) expanding 6.3 percent compared to 5.7 percent in the corresponding period of 2024. The Ghana Statistical Service data revealed broad-based growth driven primarily by the services sector, while high-frequency indicators including the Composite Index of Economic Activity suggested continued robust performance into the third quarter.
The external sector provided additional justification for easing, with Ghana’s trade balance recording a substantial surplus of 6.2 billion US dollars for the first eight months of 2025, significantly higher than the 2.1 billion US dollars achieved in the same period last year. Gold and cocoa exports drove the improved performance, despite some recent pressure on the Ghana cedi.
Committee Member 1 emphasized the negative output gap and well-anchored inflation expectations as key factors supporting the decision. The member noted that “the bank projects that headline inflation will fall within its medium-term target band of 8 percent, plus or minus 2 percentage points, by the fourth quarter of 2025.”
However, the decision was not without dissenting voices and cautionary notes. Two committee members preferred a more conservative 300 basis point reduction, citing emerging risks including potential utility tariff adjustments and recent foreign exchange market pressures that have reduced the cedi’s appreciation from 42 percent in June to 21 percent by mid-September.
The banking sector’s strong performance provided additional support for the easing decision. Financial institutions demonstrated robust profitability, improved solvency indicators, and narrowing capital gaps as banks continued recapitalization efforts. Despite sluggish private sector credit growth of just 8 percent in July compared to 17.7 percent the previous year, committee members expressed confidence that lower rates would encourage lending.
International reserves stood at 10.7 billion US dollars in August, equivalent to 4.5 months of import cover, providing adequate buffers despite a slight decline from 11.1 billion US dollars in June. The reserve position, combined with successful fiscal consolidation efforts that outperformed International Monetary Fund (IMF) programme targets, created favorable conditions for monetary easing.
The committee acknowledged upside risks to the inflation outlook, particularly from proposed utility price adjustments and global economic uncertainties. However, members concluded that downside risks outweigh potential inflationary pressures, supporting their projection that inflation will reach target levels ahead of earlier forecasts.
This represents the second major rate cut in 2025, bringing the policy rate to its lowest level since 2019. The substantial reduction reflects the central bank’s commitment to supporting economic growth while maintaining price stability, as Ghana continues its recovery from the severe macroeconomic challenges that peaked in 2023.
The decision signals growing confidence in Ghana’s economic stabilization efforts and could provide much-needed stimulus to private sector investment and consumer spending, though the actual impact will depend on how quickly commercial banks pass through the rate reduction to borrowers.