The 350-basis-point cut of the Monetary Policy Rate by the Bank of Ghana’s Monetary Policy Committee to 18% last week has produced an immediate burst of risk appetite across Ghana’s financial markets, with market traders enthusiastic about the unfolding opportunities.
However they are warning that the real effect will depend on how quickly the cut in the benchmark interest rate is transmitted through commercial banks and how the central bank’s revamped liquidity operations will influence portfolio investment decisions.
Indeed the day after the rate cut was announced, both the Ghana Stock Exchange composite index and the financial index declined – by 26.71 points, to 8,584.17 points and by 40.58 points to 4,419.97 points respectively.
These were marginal falls, of 0.31% and 0.91% respectively, but lower interest rates are supposed to support stronger stockmarket performance and thus raise the index, and so last Thursday’s GSE performance indicates that equity traders and investors did not immediately respond positively to the rate cut.
However analysts point out that the GSE Composite Index had already climbed by 75.60% year to date by the end of trading last Thursday and the Financial Index had risen even faster, by 85.65%, – thus ranking the GSE among the best stockmarkets in the world this year – and so further sharp equity price appreciation would be difficult to achieve under any circumstances.
Prior to last week’s 350 basis points cut announced last week interest rates have generally declined in line with the cumulative 700 basis points reduction in the Monetary Policy Rate announced in July and September.
The interbank weighted average rate declined to 21.0 percent in October 2025, from 23.28 percent in August, having started the year at 27.06%. Also, the average bank lending rate declined to 22.2 percent by October, compared with 24.15% in August, and having started the year at 30.07% .
The Ghana Reference Rate, which effectively serves as the base lending rate for all commercial banks had fallen to 17.86% by October, down from 19.67% as at August and 29.72% at the start of the year.
Starting from this week, short-end credit rates and securities yields are likely to fall further, in theory, after a large policy easing; yet the BoG simultaneously said it will revert to the 14-day BoG bill as its main open-market instrument to fine-tune liquidity.
By leaning on a 14-day bill Open Market Operations framework, the central bank can mop up or inject cash on a frequent basis smoothing erratic swaps between overnight and fixed tenor rates and preventing a one-off collapse in short yields that could destabilize markets.
That dual signal of big policy easing, but tightly managed short-term liquidity will keep longer-dated government securities yields under close watch.
BoG Governor Johnson Asiama framed last week’s MPR cut as a carefully calibrated response to “broadly improved macroeconomic conditions” and a sharp disinflation trajectory; he stressed projections of a stable inflation profile into the first half of 2026, predicting that inflation could end 2025 at between 6% and 8%. Markets have picked up that reassurance but traders also reminded themselves that policy transmission in Ghana is not instantaneous.
“In taking the policy decision, the view of the monetary policy committee was that overall, macroeconomic conditions have broadly improved,” Asiama said at last Wednesday’s press briefing.
Analysts have welcomed the cut as logical given falling inflation, but have emphasised transmission lags as inevitable. Razia Khan, Chief Economist for Africa and the Middle East at Standard Chartered Bank has called the move “a strategic and measured approach” that balances recovery with stability underlining that lower policy rates typically take several weeks to months to push down commercial lending and deposit rates, and even longer to feed through to credit growth and investment.
Over the coming weeks, with the BoG using the 14-day bill for OMO, financial market analysts expect the interbank and newly introduced 14-day bill segment to be the fastest to react. If the central bank injects liquidity, 14-day and overnight rates will ease quickly; if it leans toward periodic absorptions to prevent excess volatility, short rates could remain elevated relative to the new MPR until the BoG signals a sustained easing stance.
The 14-day tool gives BoG the option of a soothing balm for investors who fear runaway falls in short tenor yields.
Financial markets expect that yields on T-bills and relatively short tenured government bonds on the secondary market should drift lower as the new MPR is priced in.
But appetite at T-bill auctions will be a useful barometer: subdued participation would force yields to adjust more slowly and this is likely as recent auctions have seen under-subscriptions of securities offered..
Over the medium term, a steady decline in yields is likely only if the Bank maintains credibility on inflation and the government treasury’s funding programme is predictable.
Commercial banks will have to decide how quickly to pass cuts to borrowers.
Lower policy rates ease banks’ funding costs, but transmission depends on competition, loan-book composition and risk appetites. Worryingly for the banks, they also squeeze interest margins. Analysts caution that real lending growth will lag the policy move.
However Finance Minister Cassiel Ato Forson has welcomed the cut, saying lower borrowing costs should improve access to credit.
Indeed, the MPR cuts and consequent declines in interest rates across the economy during the third quarter of 2025 have triggered a gradual recovery in private sector credit growth.
From 7.1 percent contraction in May 2025, private sector credit growth, in real terms, has improved to 5.4 percent in October 2025.
The cedi’s relative stability in 2025 reduces the immediate foreign exchange risk that has historically complicated rate cuts.
Still, if easing revives strong import demand or stokes aggressive credit expansion before supply side conditions adjust, forex pressures could return something the BoG will monitor closely with the 14-day open market operations serving as a brake if needed.
The headlines have been dominated by the size of the cut one of the most aggressive easing cycles in recent Ghanaian history but the next few weeks will show whether the cuts transform into cheaper loans, stronger investment and higher equity returns, or whether transmission lags and liquidity management blunt the immediate impact.
For now the central bank’s message is that disinflation has given it room to support growth, but it will do so while keeping a tight operational hand on short-term liquidity.
By Toma Imirhe
