- Bank of Ghana Likely to Keep Policy Rate at 14.00% Despite Fresh Inflation Pressure
NorvanReports News Desk Analysis
The Bank of Ghana’s Monetary Policy Committee is likely to keep the policy rate unchanged at 14.00% when it concludes its 131st meeting, resisting pressure to respond immediately to Ghana’s recent inflation increase with another tightening of monetary policy.
While the balance of risks has become less comfortable, the available data do not yet provide a sufficiently strong case for a policy-rate increase. The more probable outcome is therefore a hawkish hold: the rate remains at 14.00%, but the Bank signals that it is prepared to tighten if rising fuel, transport and utility costs begin to produce broader and more persistent inflation.
NorvanReports assesses the probability of an unchanged rate at about 70.00%, compared with a 25.00% probability of a 100-basis-point increase to 15.00%. A larger adjustment appears unlikely.
The central question facing the Committee is whether the rise in inflation represents the start of a new inflation cycle or merely a normal return towards the Bank’s target after several months of exceptionally low price growth.
Headline inflation increased for a third consecutive month, rising from 3.20% in March to 3.40% in April, 3.70% in May and 5.30% in June. However, inflation remains below the lower limit of the Bank’s medium-term target band of 8.00%, plus or minus 2.00 percentage points. It is also sharply below the 13.70% recorded in June 2025.
Governor Dr Johnson Pandit Asiama’s opening remarks suggest that the Committee is not treating the latest increase as an automatic trigger for higher interest rates. Instead, the Bank is seeking to determine whether inflation is undergoing an “orderly normalisation” or entering a more persistent phase capable of influencing expectations and price-setting behaviour.
That distinction matters. A central bank generally does not need to increase interest rates merely because inflation has risen from an unusually low level. It becomes necessary when the increase threatens to persist, spread across the economy or push inflation expectations away from the official target.
The June data contain warning signs, but they are not yet conclusive. Non-food inflation rose to 6.30%, while some measures of underlying inflation accelerated sharply. Core inflation excluding energy, utilities and volatile food increased to 6.40%, while the measure excluding energy, utilities and all food items reached 7.10%. This indicates that price pressures may be gradually extending beyond the initial transport and energy shock.
At the same time, monthly headline inflation was only 0.20% in June, down from 1.10% in May. Food inflation slowed to 0.10% month-on-month, suggesting that the acceleration in the annual rate is not yet being accompanied by an uncontrolled monthly surge.
Producer-price developments also argue against an immediate policy-rate increase. National producer inflation stood at 3.50% in June, down from 5.80% a year earlier, while producer prices fell by 3.70% compared with May. Industry excluding construction recorded year-on-year inflation of 3.30% and a month-on-month decline of 4.20%.
The producer data, however, reveal concentrated pressure in sectors that can feed directly into consumer prices. Electricity and gas producer inflation rose to 12.50%, transportation and storage reached 10.00%, while accommodation and food-service activities increased sharply to 10.80%.
These are precisely the areas highlighted by the Governor. The Committee is assessing the combined impact of imported energy costs, possible utility-tariff adjustments and transport-fare increases. The danger is that a temporary external shock could become embedded domestically through higher operating costs, wage demands and repeated price adjustments.
There is also a foreign-exchange argument for caution. The cedi was quoted at GH¢11.55 to the US dollar as of July 17, representing a year-to-date depreciation of 9.50%. The currency’s movement has remained relatively orderly, but continued depreciation could intensify imported inflation, particularly if global oil prices stay elevated.
Brent crude averaged US$84.10 per barrel in June, 36.50% above its end-2025 level. The Governor indicated that renewed tensions around the Strait of Hormuz had pushed Brent back above US$85 earlier in the meeting week, increasing the risk of higher domestic fuel and transportation costs.
Still, a policy-rate increase would confront a serious transmission problem.
The interbank weighted average rate stood at 10.24% in June, significantly below the 14.00% policy rate. The 91-day Treasury bill rate was 5.27%, while the Ghana Reference Rate stood at 10.02%. This means financial-market rates are already operating considerably below the Bank’s headline policy signal.
Raising the policy rate to 15.00% while the interbank rate remains close to 10.00% would widen the gap between the official stance and actual market conditions. It might communicate concern, but without stronger liquidity management, it would have limited immediate influence on credit pricing or aggregate demand.
This explains why the effectiveness of the new 20.00% uniform Cash Reserve Ratio is likely to be more important to the Committee than a rate change. At its previous meeting, the MPC retained the policy rate at 14.00% and replaced the dynamic reserve framework with a uniform domestic-currency requirement. The Bank also ended the prefinancing of Ghana Gold Board purchases from July 1, removing a source of domestic liquidity creation.
Those decisions are inherently restrictive. They give the Bank grounds to wait and assess their full effect before adding a policy-rate increase.
The argument for caution is strengthened by strong economic activity. First-quarter GDP expanded by 6.40%, while real private-sector credit has accelerated strongly. The Governor placed real credit growth at 34.10%, compared with a contraction of 4.50% a year earlier.
Rapid credit expansion and annual reserve-money growth of 31.70% are potential sources of future demand pressure. Total liquidity grew by 28.50% year-on-year in June, while narrow money increased by 29.10%.
Yet those indicators support holding rather than immediately increasing the rate because the Committee has already tightened liquidity through the reserve requirement and the cessation of GoldBod prefinancing. The rational approach is to determine whether these operational measures are sufficient to contain excess liquidity and improve the alignment of the interbank rate with the policy rate.
The most likely decision is therefore an unchanged policy rate of 14.00%, accompanied by a materially more cautious statement.
The Bank is expected to acknowledge that the prolonged disinflation cycle has ended, highlight energy and transport risks, and indicate that future decisions will depend on inflation expectations, utility adjustments, exchange-rate developments and the effectiveness of its liquidity reforms.
A 100-basis-point increase to 15.00% would become more plausible if the Committee’s internal forecasts show inflation moving rapidly above the 10.00% upper target limit, or if the Bank has detected a meaningful deterioration in inflation expectations that is not yet visible in the published data.
On the evidence currently available, however, such a move would be premature.
The MPC is unlikely to declare victory over inflation, but it is equally unlikely to reverse course solely because inflation has risen to 5.30%—still below its target band. The more defensible decision is to hold the rate, tighten its language and preserve the option of increasing it at the next meeting should the present cost pressures become broader, persistent and self-reinforcing.
