By Toma Imirhe
The Bank of Ghana again shook up financial markets last week with a 250 basis point reduction in its Monetary Policy Rate (MPR) to 15.5%, the lowest level in four years, signaling a strategic shift from inflation containment to supporting economic growth and credit expansion. The decision, announced by Dr. Johnson Pandit Asiama, Governor of the BoG, at the conclusion of the first Monetary Policy Committee (MPC) meeting for 2026, on Wednesday, January 28, reflects improving macroeconomic conditions, including a sharp decline in inflation and a strengthened external position.
While a cut was widely expected, predictions by market analysts and commentators as to its size ranged from 100 basis points (bps) to 300 bps. The latest cut arrived at through a majority decision by MPC members is the fourth in a series of consecutive cuts in the MPR which began in late July last year and which have cumulatively lowered it by 1,250 bps from the 28% at which it stood for most of the first half of 2025.
Announcing the decision last week, Dr. Asiama emphasized that the committee was encouraged by sustained disinflation and stable inflation expectations. He added that real interest rates remain elevated, allowing the central bank to “gradually recalibrate policy without undermining macroeconomic stability
Analysts expect the cuts at the policy level to transmit over the coming months into lower commercial bank lending and deposit rates, though the speed and magnitude of this transmission will depend on competitive dynamics in the banking sector, risk perceptions, and broader liquidity conditions.
Commercial banks set their own pricing based partly on the BoG’s policy signal plus risk premiums, operating costs, and desired profit margins. According to the Ghana National Chamber of Commerce and Industry (GNCCI), many lenders still maintain lending rates well above the policy rate, reflecting additional cost layers that add an estimated four or five percentage points to final borrowing rates. These costs, GNCCI argues, act as a drag on the full impact of monetary easing for businesses.
One Accra-based banker, speaking on condition of anonymity, noted that lending rates could fall by 100–150 bps in the next two or three months as banks recalibrate pricing, but cautioned that the pace will vary by institution based on their respective costs of funds and risk appetite. “Where we’re seeing immediate softening is in short-term small and medium sized enterprise and trade finance facilities, which are now being re-priced closer to 19–20% from previous mid-20s levels,” the banker said.
For private enterprises, especially SMEs, the initial expectation is that credit will become more affordable and accessible, supporting investment, working capital financing, and expansion plans. It is instructive that last year’s overall net 900bps cut supported a reduction of average lending rates to 20.45% from 30.25% and a rebound in real private-sector credit growth to 13.1%, up from 2.0% growth in 2024.
“The rate cut is a timely boost for business recovery and private sector–led growth,” said an enthused GNCCI executive last week, applauding the central bank’s move but urging commercial banks to complement the policy cut with lower effective loan pricing and risk-sharing frameworks.
However, some enterprises remain cautious. Many firms continue to face non-interest costs, collateral requirements, and high risk premiums the banking industry’s non-performing loans ratio remains elevated at 18.9% even though this is lower than the 21.8% it stood at by the end of 2024, which mean that even with an MPR at 15.5% effective borrowing costs can remain closer to 20% or more. The gap between the BoG’s benchmark rate and actual lending rates underscores the structural frictions in Ghana’s credit markets.
On the household side, the reduction in the policy rate is expected to trickle down into lower deposit rates, though this process typically lags borrowing rate adjustments. Retail banks are likely to reduce savings and fixed-term deposit rates by 50–100 bps over the next three to six months, incentivizing consumption and potentially encouraging borrowing for mortgages, vehicle loans, and personal credit. Households holding time deposits at banks could see yields compress further as financial institutions pivot away from high-cost funding.
Credit cards, mortgage products, and consumer loans may see a similar recalibration, albeit tempered by banks’ concerns over non-performing loans and capital adequacy. According to central bank data though, most Ghanaian banks met regulatory capital thresholds by end-December 2025 following a period of regulatory forbearance and sector cleanup, improving their capacity to expand credit.
Several key factors will influence how commercial bank lending and deposit rates adjust.
One is their liquidity conditions. With inflation subdued and reserves strengthened, liquidity in the banking system has improved a prerequisite for lower interest rates. Banks with excess liquidity and stable deposit bases are better positioned to pass through cuts to customers.
Another is credit risk and non-performing loans (NPLs). Elevated NPL ratios remain a concern and so banks with large portfolios of distressed assets may be reluctant to slash lending rates aggressively until asset quality stabilizes further.
A third determining factor is competition. Competitive pressure among mid-tier banks in particular could accelerate interest rate reductions, particularly in segments like SMEs and consumer credit where price sensitivity is high.
Added to these will be macroeconomic expectations. If inflation remains anchored and the cedi stable, as the Bank of Ghana projects, market expectations of further rate cuts could take hold, prompting forward-looking adjustments in long-term borrowing and fixed income rates.
Market participants widely expect that full transmission of the latest policy rate cut to most commercial loan and deposit products will take up to anywhere between two and four months, with some segments adjusting sooner, while more structurally rigid products like long-term mortgages may take more than half a year to reflect the new policy environment.
By the end of last week, none of the commercial banks had publicly responded to the latest MPR cut with announcements of loan or deposit re-pricing, but the commencement of such announcements is anticipated over the coming weeks. .Effective policy transmission will be crucial for translating lower policy rates into tangible benefits for businesses and households alike.
