Ghana’s Bold Rate Cut: A Turning Point or a Premature Pivot?
On 29 July 2025, the Bank of Ghana (BoG) cut its benchmark policy rate by a striking 300 basis points, lowering it from 28% to 25%. This marks one of the most aggressive loosening moves in recent years—reflecting official confidence in Ghana’s macroeconomic trajectory, as disinflation gathers momentum and fiscal reforms take root.
Inflation has eased significantly to 13.7%, down from record highs that followed the 2022 economic crisis. This retreat is partly the result of coordinated fiscal consolidation under the IMF programme and a cautious recovery in investor confidence. The BoG’s rate cut aims to boost domestic credit, support private investment, and re-ignite post-crisis growth.
Yet this policy pivot, while grounded in recent macro improvements, warrants closer scrutiny.
1. A Welcome Relief for Borrowers
For Ghanaian businesses and households, high borrowing costs have weighed heavily on post-pandemic recovery. With real interest rates turning strongly positive, the case for easing is understandable: monetary policy had become overtly restrictive. A lower policy rate could spur domestic investment and reduce the debt-servicing burden on government and corporates alike.
2. But Is the FX Market Stable Enough?
Despite signs of macro stability, the foreign exchange market remains bifurcated. The Cedi continues to trade at a notable discount on parallel markets relative to the official rate—signalling persistent demand-side pressures, speculative behaviour, and structural FX shortages.
A sharp rate cut could undermine the attractiveness of Cedi-denominated assets, accelerate capital flight, and fuel further currency depreciation—particularly in an environment of limited foreign reserves and rising external obligations.
3. Inflation May Not Be Fully Anchored
While headline inflation is falling, core inflation pressures and expectations remain sticky. Exchange rate pass-through, food price volatility, and utility tariff adjustments still pose upside risks. Easing monetary conditions too rapidly could rekindle inflation and erode recent gains in credibility.
4. The Strategic Trade-Offs
| Benefit | Risk |
| Eases domestic credit conditions | Weakens real returns on savings and Cedi-denominated assets |
| Stimulates economic activity | Encourages dollarisation and speculative FX behaviour |
| Reflects confidence in disinflation | Potentially unanchors inflation expectations prematurely |
5. What Should the BoG Do Next?
To manage these risks effectively, the Bank of Ghana must:
- Provide clear and conditional forward guidance, linking future rate moves to inflation and FX trends.
- Strengthen FX market transparency and move toward unifying the official and parallel market rates.
- Maintain sterilised liquidity operations to avoid excessive injection into a fragile system.
- Ensure fiscal-monetary coordination remains intact under IMF oversight.
Conclusion: A Delicate Balancing Act
The BoG’s rate cut sends a strong signal of confidence—but it also amplifies the stakes. Ghana’s economy is indeed on the mend, but underlying vulnerabilities, especially in the FX market, remain unresolved.
The challenge now is to preserve policy credibility while nurturing a fragile recovery. Investors, lenders, and market participants will be watching closely for signals of discipline, coherence, and commitment to macroeconomic stability.
