- Has Faster Money Supply Growth Reignited Inflation in Ghana?
The Bank of Ghana (BoG) has engineered one of the most unusual monetary policy combinations in Ghana’s recent history. Since July 2025, the central bank has steadily reduced its benchmark Monetary Policy Rate (MPR), signaling confidence that inflationary pressures had been decisively contained. Yet this monetary easing was initially accompanied by continued restraint in monetary aggregates, before giving way in recent months to noticeably stronger liquidity growth.
This divergence between policy interest rates and money supply dynamics raises an important question: has the recent acceleration in reserve money and broad money growth contributed materially to the resurgence in headline inflation that began after March 2026?
The available evidence suggests a nuanced answer. While monetary expansion has begun to exert upward pressure on prices, it has not been the dominant driver of the recent inflation uptick. External cost shocks and domestic supply-side developments appear to have played the larger role, although the faster growth of liquidity has reduced the degree of monetary restraint that previously accelerated Ghana’s disinflation.
Monetary easing began before liquidity expanded
Beginning with its July 2025 Monetary Policy Committee meeting, the Bank of Ghana started reducing the MPR as inflation fell sharply, the cedi appreciated, fiscal consolidation strengthened and inflation expectations became increasingly anchored. The central bank judged that maintaining extremely restrictive interest rates was no longer necessary even while remaining committed to price stability.
Importantly, however, lower policy rates were not accompanied immediately by monetary expansion. Instead, the Bank maintained exceptionally tight control over liquidity.
The quantitative evidence illustrates this clearly.
Reserve money growth slowed dramatically throughout 2025. According to the BoG, reserve money expanded by only 12.5 percent year-on-year in December 2025, compared with 47.8 percent a year earlier, largely reflecting intensive sterilization operations. Broad money (M2+) growth also moderated substantially to 16.5 percent from 31.9 percent over the same period.
This represented a remarkable policy mix.
Normally, reductions in policy rates encourage stronger credit creation and faster monetary expansion. Instead, the BoG deliberately separated its signaling instrument—the MPR—from liquidity management. While interest rates were gradually eased, excess banking system liquidity continued to be absorbed through open market operations and other sterilization measures.
The result was a continuation of the disinflation process even though cheaper credit and foreign exchange could otherwise have reignited inflation through economic overheating, a trend which had nullified the gains of International Monetary Fund – driven restoration of macroeconomic stability many times in the past.
Headline inflation declined from 23.8 percent at the end of 2024 to 5.4 percent by December 2025 before falling further to 3.2 percent by March 2026. The Bank attributed this performance to tight monetary conditions, fiscal discipline, exchange-rate appreciation and improved food supply.
Liquidity conditions have changed
The monetary picture however began changing during the second quarter of 2026.
Although liquidity growth initially remained subdued, successive BoG monetary policy reports showed that the contraction in reserve money was ending while broad money growth was strengthening.
By February 2026, reserve money had actually contracted by 0.5 percent year-on-year, while broad money growth had eased further to 16.0 percent.
Two months later, reserve money had rebounded into positive territory, growing 3.6 percent year-on-year in April. More strikingly, broad money growth accelerated to 22.2 percent.
Although these growth rates remain far below the extraordinarily rapid monetary expansion experienced during earlier inflationary episodes, they nevertheless represent a significant easing in liquidity conditions.
Broad money growth, in particular, has increased by more than six percentage points since February.
This reflects several developments.
First, declining Treasury bill yields reduced the need for aggressive liquidity sterilization. Second, falling inflation lowered the real cost of holding monetary assets. Third, improving banking sector confidence encouraged stronger deposit mobilization and credit intermediation. Finally, stronger economic activity naturally increased demand for transaction balances.
Collectively, these developments have shifted monetary conditions from exceptionally restrictive toward more neutral territory.
Inflation is now rising…
During precisely this period though, headline inflation stopped falling.
After reaching 3.2 percent in February, inflation began increasing again, reaching 5.3 percent by June 2026, prompting renewed debate regarding whether monetary policy had become excessively accommodative.
At first glance, the timing appears suggestive. Money supply growth accelerated. Inflation also accelerated. However, correlation should not automatically be interpreted as cause and effect.
…but money supply is only part of the story
Classical monetary economics suggests that sustained increases in money supply eventually generate higher inflation if monetary growth persistently exceeds growth in real output.
However, timing matters.
Changes in money supply generally influence inflation with significant lags, often between six and eighteen months. The acceleration in broad money growth during March and April 2026 therefore appears too recent to fully explain inflation’s resurgence by the second quarter of the year.
Indeed, the BoG itself has consistently pointed toward several alternative explanations, even as its Governor, Dr Johnson Pandit Asiama, has recently expressly assured that at its most recent meeting in July, its Monetary Policy Committee came to the conclusion that faster monetary growth is not currently a significant driving force behind the resurgence of inflation.
These alternative explanations include renewed global energy price pressures associated with geopolitical tensions in the Middle East, higher shipping costs, seasonal food price movements and some increase in inflation expectations, although those expectations remained broadly anchored.
Monetary economists generally support this interpretation. Most would argue that the recent increase in money growth has probably amplified inflationary pressures rather than initiated them.
They posit that had liquidity remained as tight as it was during late 2025, inflation may still have risen since April 2026, albeit less rapidly than it has done. Without the external supply shocks, the observed increase in money growth alone would probably have produced only a modest increase in inflation.
Bank of Ghana officials have consistently emphasized that monetary policy must be interpreted through multiple indicators rather than the MPR alone. Lower policy rates do not automatically imply easier monetary conditions if liquidity continues to be tightly controlled. Likewise, faster money growth does not inevitably generate inflation if productivity, output and money demand increase simultaneously.
The effects on monetary policy going forward
The key policy challenge facing the Bank of Ghana is therefore not whether money supply should grow, but how rapidly.
Broad money expansion in the low-20 percent range may remain consistent with low single-digit inflation if supported by continued economic growth, exchange-rate stability and prudent fiscal policy.
However, should monetary growth continue accelerating while external price shocks persist, inflation risks would undoubtedly increase.
Future MPC decisions are therefore likely to focus increasingly on liquidity indicators alongside conventional inflation forecasts.
The experience since July 2025 demonstrates that Ghana’s monetary authorities have become considerably more sophisticated in separating interest-rate policy from liquidity management. Initially, monetary easing through lower policy rates coexisted with exceptionally tight money supply control. More recently, both interest rates and monetary aggregates have moved in a more accommodative direction.
While this shift has coincided with a modest rebound in inflation, the quantitative evidence indicates that money supply growth has been a contributing factor rather than the principal cause. External cost pressures and supply-side developments remain the more convincing explanations for the recent inflation resurgence, although continued acceleration in monetary aggregates would increase the likelihood that demand-side inflation becomes more persistent in the months ahead.
