Ghana’s central bank surprised markets in mid-September 2025 by cutting its policy rate by 350 basis points, the single largest reduction in recent memory taking the monetary policy rate to 21.5 per cent from 25 per cent. This followed an even earlier and unusually large 300-basis-point cut in July, meaning that policymakers have eased policy aggressively within two consecutive meetings. The Monetary Policy Committee framed the decision as a judgement that the disinflationary process was sufficiently entrenched to allow a meaningful loosening of financial conditions aimed at reviving private credit extension and investment. The official MPC press release makes clear that the cut was a majority decision and that members will continue to monitor developments closely.
The decision rests on concrete progress in headline inflation. Ghana’s Consumer Price Index (CPI) fell to 11.5 per cent year-on-year in August 2025, down from 12.1 per cent in July and marking the eighth consecutive monthly decline and the lowest headline rate since October 2021. The monthly CPI change also registered a contraction, with prices falling by 1.3 per cent between July and August, a strong short-run signal that monthly inflation momentum has reversed. Alongside headline figures, the authorities report an easing of core inflation and a decline in inflation expectations among households, firms and the financial sector, which was explicitly cited by the Bank as supporting the decision to ease. These datapoints are central: they demonstrate that the pass-through of past shocks is weakening, giving policy room to act.
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Ghana’s macroeconomic picture is not solely about prices. Real output expanded by 6.3 per cent year-on-year in Q2 2025, an acceleration from 5.7 per cent a year earlier. Growth outside the oil sector was even stronger: non-oil GDP rose by an estimated 7.8 per cent. The services sector was the principal engine, growing almost 9.9 per cent in the quarter, while agriculture posted solid gains as well. Those figures matter for policy: stronger non-oil growth and a more diversified output mix increase the economy’s capacity to absorb easier monetary conditions without reigniting inflation immediately.
Lowering the policy rate changes the economy through several channels and the effectiveness of each depends on financial markets, banking behaviour and fiscal discipline. First, a lower policy rate reduces the cost of funding for commercial banks, which should, in principle, translate into lower lending rates for firms and households. That is intended to stimulate credit demand, especially for investment projects that were previously unviable under very high real rates. Second, reduced short-term yields can weaken the exchange rate, improving competitiveness for exporters; in Ghana’s recent episode, however, the cedi has actually strengthened this year on the back of higher export receipts from gold and cocoa, which moderates exchange-rate concerns.
Third, easier policy should lift asset prices and business confidence, thereby increasing aggregate demand. Crucially, the potency of these channels depends on banks passing through cuts to lending rates, the health of bank balance sheets, and the pace of private-sector deleveraging following the country’s earlier fiscal and debt restructuring.
Monetary policy does not operate in a vacuum. Ghana remains under a multi-year IMF-backed programme that conditioned external financing and debt restructuring on fiscal consolidation and reforms. The IMF and the authorities have emphasised the need to rebuild reserve buffers and to ensure medium-term debt sustainability. Reserve accumulation this year has been significant according to reporting, with reserves reported around $10.7 billion and covering approximately 4.5 months of imports, an improvement from crisis troughs and an important buffer against external shocks. That improvement in reserves offers the Bank of Ghana more room to cut rates without triggering destabilising capital outflows, but it also imposes a duty on fiscal authorities to maintain prudent budgets so that monetary loosening does not get offset by fiscal slippage.
Several downside scenarios could blunt the benefits of the rate cut or reverse disinflation. First, sudden upward adjustments in utility tariffs, which the Bank explicitly flagged, would have an immediate, visible effect on headline inflation and could force a policy reversal. Second, any sizeable fiscal loosening or failure to meet IMF programme benchmarks would erode credibility and likely revive inflation expectations, making future disinflation more costly. Third, global shocks such as a renewed rise in energy prices or a sharp tightening of global financial conditions (a surprise rise in US or European rates) could transmit to Ghana via commodity prices and capital costs.
Fourth, incomplete pass-through of rate reductions to bank lending rates, whether because banks rebuild margins or because balance-sheet constraints persist would blunt the intended stimulus and fail to generate the expected pick-up in private investment. Finally, uneven regional price dynamics suggest that domestic supply constraints in certain regions could sustain localised inflationary pockets even as national headline inflation falls. These risks mean the Bank’s path is conditional rather than pre-ordained.
Who Wins and Who Must Watch Closely
Lower policy rates should benefit borrowers in investment-heavy sectors. Manufacturing and tradable services stand to gain from cheaper credit and a potentially more competitive cedi. Households servicing variable-rate consumer debt would also see relief if commercial banks pass on cuts. Conversely, sectors dependent on regulated costs, utilities, transport and energy-intensive industries, will remain sensitive to any tariff adjustments; if tariffs rise, the benefit of lower rates could be offset by higher operating costs.
Export sectors tied to commodities could benefit from a firmer exchange rate and higher global commodity receipts; indeed, higher gold and cocoa revenues this year have already strengthened reserves. For foreign investors, a combination of lower yields and improving macro fundamentals may make Ghanaian corporate and sovereign bonds attractive again, but that depends on continued policy credibility and the pace of global rate movements.
The near-term outlook can be thought of in three plausible scenarios. In the base case, disinflation continues at a steady pace, fiscal authorities maintain the consolidation path agreed with multilateral partners, reserves remain adequate, and banks pass through rate cuts to lend more. Under that outcome, the 21.5 per cent policy rate will encourage a meaningful recovery in credit and private investment, bringing headline inflation toward the BoG’s medium-term 8±2 per cent target by the end of the fourth quarter as the MPC expects. A downside scenario involves tariff shocks, fiscal slippage or adverse global conditions that reignite inflation and force the BoG to re-tighten; this would shorten the policy window and raise borrowing costs again. An upside scenario would see faster disinflation and stronger foreign inflows, allowing the BoG to continue easing more gradually while preserving reserves, with stronger growth reinforcing fiscal buffers.
What Policymakers Should Watch and Do Next
Careful sequencing matters. The Bank of Ghana should couple rate cuts with clear forward guidance and transparent communication on its reaction function, the precise metrics that would trigger a pause or tightening. Fiscal authorities must signal credible commitment to budget discipline and avoid ad-hoc spending that would undermine monetary gains. The banking sector should be encouraged, if necessary through regulatory nudges, to pass through meaningful cuts to lending rates so that monetary easing actually translates into real economic activity. Finally, maintaining flexible but pragmatic exchange-rate management, while safeguarding reserve buffers, will be crucial to preserve external stability.
Conditional Optimism
Ghana’s 350-basis-point cut is a bold policy step, arguably justified by sustained declines in inflation, solid non-oil growth, and improved external buffers. If the three policy pillars, credible monetary policy, disciplined fiscal management and stable external reserves remain intact, the easing can support a durable recovery in private investment without derailing disinflation. The path ahead is conditional and requires ongoing coordination across institutions; the rewards are significant, but so too are the perils of complacency.
