The Bank of Ghana has declared on its website that it is set to scale back its mopping of liquidity in 2026 if inflation and exchange rate pressures remain contained.
This stance will be welcomed by businesses and households alike across Ghana who fret that even though the sharp fall in consumer price inflation and accompanying lowering of credit financing costs have been beneficial to them, this has been achieved in part by depriving them of direly needed liquidity, as the central bank has sought to minimize demand-pull inflation for goods, services and foreign exchange. This has been achieved primarily by its issuance of short term Bank of Ghana bills to conduct its open market operations through liquidity mop-ups, as well as stringent reserve requirements for commercial banks.
However the central bank has also warned that it will only allow liquidity growth cautiously, and only as macro-economic conditions permit, stressing that while it is “currently confident in the disinflation path and fiscal discipline… its priority is to keep inflation expectations well-anchored, using both interest rate policy and liquidity absorption tools.”
Economic operators hail the BoG for its pivotal role in bringing inflation down from 23.8% at the start of the year, to a long term low of 6.3% for November, and for cutting the Ghana Reference Rate (which effectively serves as the base lending rate for all the commercial banks) from 29.72% at the turn of the year to 17.86% by October.
However they accuse it of doing this by mopping up much of the liquidity in the economy, thereby depriving them of the means to execute many of their needed economic plans and transactions.
Indeed, total liquidity in the economy measured by M2+ – grew by just 6.1% over the first ten months of 2025, having started the year at GHc329.8 billion and reaching GHc351.4 billion by the end of October.
Even more instructively it declined to a trough of GHc325.0 billion in June; and October’s level was lower than September’s GHc354.0 billion.
Indeed, the BoG insists that easing monetary policy through interest rate cuts does not necessarily imply that the monetary policy stance is not tight. It points out that with high real interest rates, as is the case in Ghana, it can sufficiently reduce the monetary policy rate and still maintain a tight monetary policy stance thus arguing that the recent sharp reductions in the monetary policy rate by the Monetary Policy Committee (cumulatively from 28% to 18% between July and November) are therefore fully consistent with the IMF’s recommendation to maintain a tight monetary policy stance.
Now however central bank officials are considering allowing increased liquidity in the economy next year. This would support the achievement of government’s 4.8% economic growth target for 2026 the World Bank projects a lower 4.3% but Fitch Ratings projects it at a higher 5.9% – this coming on an expected growth of at least 4.5% for 2025.
If the Bank of Ghana permits liquidity whether measured by broad money (M2+), or overall domestic credit to grow at a faster pace in 2026 than it did in 2025, the implications would be far-reaching. Higher liquidity can support the post-stabilization growth agenda of the Mahama administration, especially under policies such as the 24-Hour Economy and the stimulus measures for export diversification.
However, it also poses risks for inflation, exchange-rate stability and debt sustainability, especially given Ghana’s recent experience with macro-economic volatility.
A more liquid financial environment would generally push interest rates downward, particularly lending rates, which remain a major constraint to private-sector expansion.
Lower financing costs would help manufacturers, agribusiness firms and service providers invest in capacity expansion, adopt new technology and scale up working capital which could boost output, employment and domestic value-addition in line with government objectives.
Besides, increased liquidity usually translates into reduced borrowing costs for households as well, making personal loans and consumer financing more affordable, raising household consumption and possibly stimulating real estate and retail activity.
Banks would gain from stronger credit demand and improved loan growth after years of tight credit conditions following the Domestic Debt Exchange Programme (DDEP).
Non-bank financial institutions may also find easier access to wholesale funding in a more liquid market which also typically reduces the yield curve on public treasury instruments, lowering the government’s domestic borrowing costs.
However, these advantages would be accompanied by considerable risks to Ghana’s hugely impressive economic turnaround accomplished in 2025.
The most immediate risk from excessively rapid liquidity growth is rising inflation. If the increase in money supply outpaces real economic activity especially in a supply-constrained economydemand-pull inflation could resurface. Given Ghana’s recent success in gradually lowering inflation to single digits from a high of 54.5% in 2023, any reversal would erode purchasing power and undermine public confidence in monetary policy. However BoG Governor Dr Johnson Asiama is confident the central bank can navigate its way around this. “The MPC has shown that data-driven policy decisions and the careful calibration of the policy rate can effectively deliver price stability. Relying on these lessons, the Committee aims to keep inflation firmly within the medium-term target band of 8 ± 2 percent in 2026.
Higher liquidity could also lead to increased imports and speculative foreign exchange demand, putting pressure on the cedi, a situation which indeed arose during the third quarter of this year, thus persuading the BoG to aggressively mop up liquidity in September, ahead of its US$1.15 billion forex market intervention in October.
A weakening currency would raise the cost of imported goods and fuel, feeding into inflation and potentially triggering a destabilizing feedback loop.
If liquidity growth appears inconsistent with inflation-targeting principles or IMF programme commitments, investor confidence could weaken. This may result in higher risk premiums, reduced foreign portfolio inflows and greater volatility in domestic bond markets.
Furthermore, while credit growth can strengthen banks, overly rapid expansion may compromise credit quality. Non-performing loans could rise if lending outpaces proper risk assessment.
Economists and monetary policy analysts agree that allowing faster liquidity growth in 2026 could support growth, investment and job creation across multiple stakeholder groups. But it must be carefully calibrated to avoid triggering inflation, currency instability and policy credibility concerns.
The Bank of Ghana has already put in place a framework for micro- management of liquidity by reintroducing very short term 14 day bills for its open market operations The challenge for the Bank of Ghana is striking a balance between stimulating economic activity and protecting hard-won macroeconomic stability gains.
By Toma Imirhe
