Economist Warns BoG’s 300bps Policy Rate Cut May Be Premature
An economist and finance lecturer at the University of Ghana Business School, Professor Patrick Asuming, has questioned the Bank of Ghana’s decision to slash its benchmark policy rate by 300 basis points, describing the move as aggressive and premature given the current economic outlook.
The Bank of Ghana (BoG) on Monday announced a reduction in the policy rate from 28% to 25%, citing improved macroeconomic conditions and a sustained disinflation trend as key justifications. The decision, which came out of the central bank’s Monetary Policy Committee (MPC) meeting in July, marks one of the steepest policy rate adjustments in recent years.
However, Professor Asuming said the scale of the cut was unexpected and not reflective of the lingering uncertainties in the economy. In his view, the central bank could have adopted a more measured stance, either by maintaining the rate or executing a more modest 100 basis points reduction.
“I was surprised by the size of the cut,” Prof Asuming said in an interview. “Yes, the indicators are improving — inflation is coming down, the cedi is relatively stable — but the fundamentals are not yet solid enough to justify such a sharp drop. A more cautious approach would have allowed policymakers to observe whether these gains are sustainable.”
The central bank’s move follows a continued easing in inflation, with headline consumer prices falling to 13.7% in June from 18.4% in May — the lowest level since December 2021. The cedi has also posted gains against major trading currencies, while external sector buffers have improved, helping to anchor inflation expectations.
Nonetheless, Professor Asuming cautioned that while disinflation momentum may persist in the short term, the risks to the outlook remain, especially as Ghana’s macroeconomic recovery remains fragile.
“I don’t think there will be a reversal in the disinflation trend in the immediate term. There’s still some momentum. We haven’t seen the full pass-through of the cedi appreciation yet. And with the upcoming harvest season, food inflation is likely to ease further,” he said.
“However, perhaps we could have waited two more months. If by then we were within the medium-term inflation target band, we’d be on stronger footing to support a policy rate reduction of this magnitude.”
The Bank of Ghana has indicated it will continue to assess macroeconomic data and developments to guide future monetary policy decisions.
