- Bank of Ghana Likely to Hold Policy Rate at 14% As Reserve Losses Outweigh Low Inflation
The Bank of Ghana’s Monetary Policy Committee is likely to keep its benchmark interest rate unchanged at 14.00%, resisting the temptation to cut despite inflation remaining below its target band.
After studying the data available to us here at NorvanReports, the case for lower interest rates appears compelling at first sight. Headline inflation was 5.00% in August, below the central bank’s target range of 8.00% plus or minus two percentage points. The policy rate is therefore nine percentage points above inflation, leaving Ghana with a substantially positive real interest rate.
Economic activity, meanwhile, remains robust. Gross domestic product expanded by 6.00% in the second quarter, private-sector credit is growing strongly and the banking system is adequately capitalised.
Yet the decision confronting the MPC is more complicated than the inflation number suggests.
Ghana’s international reserves have fallen sharply, the cedi has depreciated by 9.50% against the dollar since the beginning of the year, oil prices have risen amid an escalating Middle East conflict, and domestic liquidity is expanding at a pace that could eventually translate into renewed price and exchange-rate pressures.
The strongest signal of the Committee’s likely choice comes from the opening remarks delivered by Bank of Ghana Governor Dr Johnson Pandit Asiama at the beginning of the 132nd MPC meeting.
His framing suggests that a rate increase is unnecessary but that another reduction would be difficult to justify at this stage. The balance of risks points towards a hold.
The inflation case for a cut. Inflation remains the strongest argument for monetary easing.
Headline inflation stood at 5.00% in August, compared with 11.50% a year earlier. Food inflation fell to 3.00%, while the overall consumer price index declined by 1.00% during the month as food prices dropped by 2.60%.
Most measures of underlying inflation also remained contained. Core inflation excluding energy and utilities was 4.20%, while the measure excluding energy, utilities and transport stood at 3.80%.
On these figures alone, a 14.00% policy rate appears restrictive.
The Bank of Ghana has already delivered a substantial easing cycle. The policy rate fell from 25.00% in August 2025 to 21.50% in September, 18.00% in November, 15.50% in January 2026 and 14.00% in March.
The rate has since remained unchanged. The decline has transmitted through parts of the financial system. The interbank weighted average rate fell to 10.20% in August, from 23.28% a year earlier. The Ghana Reference Rate declined from 19.67% to 10.61%, while the average bank lending rate fell from 24.15% to 15.94%.
These are substantial improvements for businesses that spent several years confronting extremely high financing costs.
Treasury bill yields have also declined. The 91-day bill yielded 5.38% in August, the 182-day bill 7.28% and the 364-day instrument 12.16%.
A further reduction in the policy rate could therefore be defended as an effort to align the central bank’s benchmark more closely with prevailing inflation and short-term market rates.
But inflation is no longer moving decisively downwards.
Inflation is low but its direction has changed Headline inflation reached a low of 3.20% in March before rising to 3.40% in April, 3.70% in May and 5.30% in June. It eased to 4.60% in July but climbed again to 5.00% in August.
The level remains favourable. The direction is less reassuring.
More importantly, the composition of inflation suggests that the benign headline figure is being supported by falling food prices, while domestic cost pressures are building elsewhere.
Food inflation declined to 3.00% in August, but non-food inflation rose to 6.80% from 3.90% in March. The core measure excluding energy, utilities and all food products stood at 6.40%.
This distinction matters because falling food prices can be seasonal and volatile. Non-food inflation may provide a better indication of underlying pressures from housing, transport, utilities, services and exchange-rate movements.
The Governor has already identified higher energy prices and administered tariffs as risks. The MPC must decide whether the expected rise in inflation will be temporary or the beginning of a more persistent adjustment.
Cutting the policy rate just as non-food inflation is strengthening could send the wrong signal, particularly if the cedi remains under pressure.
Reserves have become the decisive constraint The external position is the strongest reason to hold the rate at 14.00%. Gross International Reserves fell from US$14.16 billion in March to US$12.94 billion in June and US$11.07 billion in August. That represents a decline of US$3.09 billion, or 21.8%, in five months.
Import cover consequently fell from 5.7 months to 4.2 months. Under the programme definition, which excludes encumbered assets, Ghana Infrastructure Investment Fund equity and the petroleum funds, reserves declined from US$12.24 billion in March to US$9.05 billion in August. Programme import cover fell from 4.9 months to 3.4 months.
Net International Reserves also dropped by almost US$3.18 billion, from US$11.87 billion to US$8.69 billion.
There has been some recovery. The Bank of Ghana reports that gross reserves had risen to US$12.05 billion by September 22, equivalent to 4.5 months of import cover. Net reserves had also improved to US$9.03 billion.
That rebound provides reassurance, but it does not erase the broader decline since March.
It is especially striking because Ghana recorded a merchandise trade surplus of US$8.86 billion during the first eight months of the year. Exports reached US$22.44 billion, supported by US$14.86 billion in gold receipts.
The coexistence of a large trade surplus and falling central-bank reserves suggests that merchandise earnings alone are not sufficient to describe the external position.
The current account is projected to move into deficit in the third quarter as gold shipments slow and payments for services increase. GoldBod’s pause in gold exports since mid-August adds another immediate risk to foreign-exchange supply.
The Bank therefore needs to rebuild its net foreign assets before the seasonal increase in dollar demand during the fourth quarter. A rate cut could make that task harder by reducing the return on cedi assets and reinforcing expectations of further currency weakness.
The cedi complicates the easing argument The cedi was trading at about GH¢11.55 to the dollar by September 18, representing a year-to-date depreciation of 9.50%.
Against the pound and euro, it had lost 9.00% and 7.30%, respectively.
The depreciation has not yet produced a destabilising rise in headline inflation. That may reflect delayed transmission, subdued food inflation and relatively anchored expectations. But exchange-rate pass-through in Ghana has historically been powerful.
A weaker cedi raises the domestic cost of fuel, machinery, pharmaceuticals, raw materials and other imported inputs. With crude oil prices rising, the exchange rate and energy shock could reinforce each other.
Brent crude averaged US$88.10 per barrel in August, 42.9% higher than at the end of 2025. The Governor said prices had subsequently moved to about US$107 as the conflict involving the United States and Iran disrupted shipments through the Strait of Hormuz and attacks affected Saudi oil infrastructure.
Ghana benefits from higher crude prices through petroleum exports, but it also imports substantial quantities of refined products. Oil imports reached US$4.80 billion by August, up 47.5% from a year earlier.
The immediate effect on transport, production and consumer prices could therefore outweigh part of the export benefit.
A rate cut would not resolve an oil supply shock. It could, however, weaken the currency at the moment when the dollar cost of energy imports is rising.
Credit and liquidity are already expanding The domestic economy does not appear to require emergency monetary support.
GDP grew by 6.00% in the second quarter, following 6.40% in the first. Services expanded by 8.00%, industry by 4.30% and agriculture by 3.90%.
The Bank of Ghana’s real Composite Index of Economic Activity increased by 14.90% in July, indicating strong momentum.
Private-sector credit grew by 35.50% in nominal terms and 29.00% in real terms in August. Total bank advances rose to GH¢129.2 billion, from GH¢95.3 billion a year earlier.
At the same time, reserve money expanded by 29.70%, narrow money by 22.40%, broad money by 23.40% and total liquidity by 20.40%.
These numbers do not mean an inflation surge is inevitable. Some of the expansion reflects financial normalisation and stronger credit demand after a prolonged period of distress.
But they weaken the argument that monetary policy must be relaxed immediately to rescue economic activity. Credit is already accelerating, market interest rates have fallen sharply and banks are still adjusting to the revised cash reserve ratio regime.
The MPC can afford to wait and observe how these changes feed into spending, asset prices, imports and inflation.
Fiscal discipline offers support but the fourth quarter matters The fiscal position has improved. By July, the government recorded a cash primary surplus of 1.00% of GDP and a commitment primary surplus of 1.40%.
Public debt stood at 45.90% of GDP, although the cedi value of the debt had risen to GH¢733.9 billion.
The Governor said fiscal performance was stronger than programmed and noted the improvement in Ghana’s sovereign ratings and debt-risk assessment.
Yet he also warned that expenditure would rise during the remainder of the year, the share of short-term domestic debt was increasing and the completion of external debt restructuring would create additional debt-service obligations.
Net claims on the government within the monetary accounts jumped from GH¢130.6 billion in July to GH¢154.9 billion in August. This movement deserves attention because rising government financing requirements can inject liquidity, place pressure on domestic yields and complicate monetary management.
The first review under Ghana’s new 36-month Policy Coordination Instrument with the IMF is also approaching. The arrangement carries no direct financing, making policy credibility and reserve accumulation even more important.
A premature rate cut could be interpreted as placing short-term growth or government financing considerations above the rebuilding of external buffers.
The likely decision: hold at 14.00% The MPC has three choices, but only one appears proportionate to the evidence.
An increase would be difficult to defend while inflation is below the central bank’s target band, inflation expectations are easing and economic conditions remain stable. There is no clear evidence yet of a disorderly currency adjustment or an unanchoring of prices that would require a rate rise.
A cut is more plausible, particularly because the real policy rate remains high. But it would expose the Bank to unnecessary risk at a time of falling reserves, cedi depreciation, higher oil prices, accelerating credit and expected fourth-quarter fiscal pressures.
The most likely outcome is therefore a hold at 14.00%.
This would allow the Bank to preserve a relatively attractive cedi interest-rate position, assess the inflationary effect of oil prices and tariffs, monitor the transmission of the revised reserve requirements and rebuild foreign-exchange buffers.
The decision would not mean the easing cycle is over. If reserves recover, the cedi stabilises and inflation remains contained after the energy shock passes, the case for another rate reduction could become stronger at a subsequent meeting.
For now, the Bank’s problem is no longer simply how to reduce inflation. It is how to protect the stability it has achieved without exhausting the external buffers that helped produce it.
The prudent choice is patience.
