The Bank of Ghana (BoG) is not sending mixed signals, it is running two separate monetary tools toward a single goal, according to an economist who has examined the central bank’s current policy stance in detail.
Questions have been circulating in financial circles about whether the BoG can credibly cut interest rates while simultaneously spending heavily to drain money from the banking system. On the surface, the two actions appear to cancel each other out. In practice, economists say they do not.
Ghana’s Monetary Policy Committee (MPC) reduced the policy rate by 150 basis points to 14 percent, citing favourable domestic macroeconomic conditions and historically low inflation, despite rising geopolitical tensions. That move extended a rate-cutting cycle that has brought borrowing costs down sharply from crisis-era highs.
At the same time, the central bank has been absorbing excess money from the financial system at significant cost. Beginning in early 2025, the Bank of Ghana removed approximately GH¢65 billion from circulation through various monetary operations aimed at curbing excess liquidity.
Prof. Dennis Nsafoah, Assistant Professor of Economics at Niagara University in New York and a member of the Research Committee at Tesah Capital, argues the two moves operate on entirely different parts of the economy and should not be read as contradictory.
Two channels, not one
The key distinction, according to Prof. Nsafoah, is that the policy rate governs the price of short-term credit, while liquidity operations govern how much money actually moves through the financial system. Cutting one does not automatically change the other.
Interest rates across the economy have declined sharply, with the interbank rate falling from above 27 percent in early 2025 to about 12.6 percent by February 2026. The Ghana Reference Rate dropped from 32.17 percent in January 2024 to about 11.7 percent, confirming that policy rate reductions have transmitted effectively into domestic financial conditions.
Simultaneously, commercial banks’ reserves held at the Bank of Ghana declined significantly, from over 74 billion cedis earlier in 2025 to about 60.8 billion cedis by February 2026, with growth in total liquidity moderating markedly and averaging below 20 percent over the past year.
The reason the central bank cannot simply abandon the liquidity side has to do with Ghana’s specific economic vulnerabilities. Excess cedi liquidity in the system does not stay idle. It tends to flow into the foreign exchange market, generating demand for dollars and weakening the cedi. A weaker cedi drives up the cost of imports and quickly feeds back into inflation, a cycle Ghana experienced acutely during the 2022 to 2023 crisis. By draining that surplus liquidity, the BoG limits the pressure before it reaches the currency.
A comparable global strategy
Prof. Nsafoah points to the United States as a reference point. The Federal Reserve cut its policy rate significantly between 2024 and 2025 while simultaneously shrinking its balance sheet through quantitative tightening, reducing its holdings from approximately 7.1 trillion dollars to 6.5 trillion dollars. This was widely interpreted as a normalisation process rather than a contradiction.
Ghana’s approach, he argues, follows the same logic adapted for local realities, replacing balance sheet reduction with targeted open market operations to mop up post-crisis liquidity.
The cost question
The sterilisation strategy is not without expense. Reserve money growth slowed to 12.5 percent in 2025 from 47.8 percent in 2024, and broad money growth moderated to 16.5 percent from 31.9 percent over the same period, reflecting the scale of the central bank’s intervention.
The International Monetary Fund flagged approximately 214 million dollars in quasi-fiscal losses linked to trading margins and operating fees under the gold programmes and advised that such costs be transferred to the national budget rather than retained on the central bank’s balance sheet.
The BoG has acknowledged the costs and signalled they are expected to decline as inflation stays low and interest rates normalise further.
For Prof. Nsafoah, the current approach represents a careful transition from crisis management to growth recovery, one where cheaper credit and currency protection must move in parallel rather than in sequence.
