News Guide Africa

Tag: Monetary Policy Committee (MPC)

  • BoG plans for a more liquid economy in 2026

    BoG plans for a more liquid economy in 2026

    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

     

     

     

     

     

     

     

  • Analysts anticipate sharp policy rate cut as BoG’s MPC meets this week

    Analysts anticipate sharp policy rate cut as BoG’s MPC meets this week

    The Bank of Ghana’s Monetary Policy Committee (MPC) meets over three days, this week, from Monday, November 24 to Wednesday, November 26, with markets and businesses broadly expecting another significant easing of the benchmark Monetary Policy Rate (MPR) after months of rapid disinflation.

    The MPR is the rate at which the central bank lends to commercial banks in its role as lender of last resort to smoothen their short term liquidity shortfalls and it thus serves as an indicative rate guiding interest rates across the financial markets

    After an aggressive easing cycle during the third quarter of this year — the MPC cut the MPR by 300 basis points in July and then further by a record 350 basis points in September to 21.5% — economists, research houses and treasury desks are braced for a further step down. Central bank Governor, Dr Johnson Asiama has repeatedly pointed to improving macroeconomic indicators and anchored inflation expectations as the rationale for easing during the two consecutive rate cuts earlier this year.

    Financial research houses are split on quantum but have a consensus on direction. IC Research says stronger disinflation and cedi appreciation give scope for a deep reduction — it has modelled an aggressive 400 basis-point cut to around 17.5%. Other local forecasters, including Databank and United Capital, urge a more cautious approach but also expect a cut in the 200–300 basis-point range.

    Banks and lenders are braced for pronounced interest rate margin pressure if the MPC delivers another large cut. Fitch Ratings has warned that sequential rate reductions this year will squeeze bank net interest margins and profitability, a concern echoed by local bank chiefs at industry engagements with the governor. Many banks are, however, publicly supportive of lower policy rates to revive credit to the real economy if the disinflation path holds.

    Borrowers and manufacturers — especially small and medium-sized firms that have faced tight credit conditions for much of the past two years — are among the most vocal proponents of faster easing. “Lower MPRs will finally translate into cheaper working capital and investment loans, vital for manufacturing recovery,” said a senior executive at a leading Accra-based food processor. Exporters and commodity producers are more mixed; while lower domestic rates reduce financing costs, exporters caution that a sharply stronger cedi could hurt competitiveness and indeed have been pressing government for targeted measures to dampen exchange-rate swings.

    Portfolio investors and the fixed-income market are watching the MPC closely for guidance on the likely path for government securities yields and liquidity. Yields have come down in recent months as the central bank signaled a dovish stance and many foreign portfolio managers tell clients they expect another cut but will watch the size closely before repositioning.

    “A calibrated cut of 200–300bps would be consistent with the recovery narrative and should bring further yield compression,” a fixed-income strategist at a regional fund said, his views reflecting wider sentiment among many financial market operators.

    Government’s Finance Minister Dr Cassiel Ato Forson has highlighted fiscal consolidation and exchange-rate stability as complements to monetary easing, telling investors this month that fiscal discipline has helped create room for policy normalisation. That partnership — between tighter fiscal policy and a now (cautiously) dovish central bank — is central to expectations that the MPC will act to significantly cut interest rates further.

    Weighing official comments, research-house forecasts and market pricing, financial commentators suspect the most likely outcome is a cut of 250–300 basis points, taking the MPR into the 18.5–19.0% range. A 400bps move to below 18% remains an unlikely but possible scenario though if the central bank’s forecasts for November inflation point to another sharp drop and the cedi’s exchange rate remains firm. Any decision will hinge largely on the committee’s risk assessment of possible impending food and utility-price shocks and the government’s ongoing fiscal trajectory.

    The MPC will deliver its decision and hold a press conference on Wednesday, November 26. Markets will read both the number and the Governor’s statement – he doubles as the Chairman of the MPC – closely for forward guidance on how fast the easing cycle can continue into 2026.

     

     

  • Ghana’s policy rate remains high …ranks 3rd in Sub-Saharan Africa

    Ghana’s policy rate remains high …ranks 3rd in Sub-Saharan Africa

    Ghana retains its position as the country in Sub-Saharan Africa with the third highest policy rate, according to the World Bank’s October 2025 Africa Pulse Report.

    Despite a 7.5 percentage point reduction in the monetary policy rate since January 2025, Ghana’s benchmark rate still stands at 21.5%, although this is the lowest since October 2022.

    The Bank of Ghana has attributed the cut in the policy rate to a sharp fall in inflation which is currently hovering in the single digit bracket. Countries like Kenya, Mozambique, Lesotho, and South Africa have either cut interest rates or paused contractionary monetary policies, while Mauritius and Zambia have raised rates due to inflation concerns.

    The World Bank warns of potential headwinds from global economic uncertainty, commodity price fluctuations, and domestic conflicts that may heighten inflationary pressures.

    Analysts have warned that Ghana’s high policy rate may impact businesses and individuals seeking loans, as borrowing costs remain elevated compared to regional peers. Indeed, the central bank’s decision to cut rates aims to stimulate economic growth while maintaining inflation control

    “Other central banks in the region have recently raised rates due to a slight resurgence of inflation this year, namely Mauritius and Zambia”, the report stated.

    It continued that potential headwinds from global economic uncertainty including sharp fluctuations in commodity prices and restrictive trade policies, domestic and regional conflicts and political instability as well as fiscal slippages may heighten inflationary pressures and risk delays in monetary policy normalization.

    The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) in September 2025 cut the rate at which it lends to commercial banks by 350 basis points to 21.5%, the lowest since October 2022.

    The central bank attributed the cut in the rate to sustained disinflation, robust growth and stronger external buffers.

     

  • BoG sells US$243mn in FX forward auction, highest since beginning of 2025

    BoG sells US$243mn in FX forward auction, highest since beginning of 2025

    The Bank of Ghana (BoG) has sold one of its highest amounts of dollars for the market through a single 7-day FX forward auction.

    Market data seen by JOYBUSINESS showed that the Bank of Ghana last week, through its FX Forward Auction, offered US$ 300 million.

    However, the commercial banks just accepted US$ 243 million, with a price range of between GHc 12.15 and GHc12.40.

    Market Response

    Some commercial banks told JOYBUSINESS they expect the cedi to trade steadily against the dollar in the coming days, buoyed by the central bank’s intervention.

    However, despite a pick-up in interbank activities since August 2025, only about US$4 million was reported to have changed hands among participants last Wednesday.

    The intervention comes shortly after President John Mahama announced at a recent media engagement that the BoG had withdrawn routine interventions in the forex market, stressing the need to strike a balance between supporting exporters and not overburdening importers.

    At the most recent Monetary Policy Committee press briefing, in mid September, Governor Dr Johnson Asiama assured that commercial banks have been adequately supplied with dollars to meet market demand.

    Checks by JOYBUSINESS also show that the cedi’s rate of depreciation has slowed in recent weeks, though it remains unclear whether BoG’s latest intervention is the main driver.

    BoG on declining FX forward auction

    The Bank of Ghana had started reducing the volume of dollars sold through its FX Forward Auction programme after the second quarter of 2025.

    Market data revealed that in August 2025, BoG sold US$737 million through spot and forward auctions representing an 18% drop from the US$900 million-plus sold in July.

    Market analysts say this trend highlights BoG’s deliberate scaling back of its interventions.

    Cedi Pressure to Ease Soon

    The Bank of Ghana has expressed optimism that current pressures on the cedi will normalise soon, backed by new monetary measures aimed at boosting forex inflows for commercial banks.

    Director of Research Dr Philip Abradu-Otoo disclosed on PM EXPRESS BUSINESS EDITION that the Central Bank’s directive requiring mining firms to channel their dollar inflows through local banks has already eased liquidity challenges.

    “We have also seen remittances pick up after recent regulatory intervention, and all of these should go a long way to improve supplies on the market,” Dr Abradu-Otoo stated.

    He added that cocoa inflows and expected donor disbursements in the coming months will further strengthen forex supply.

    “All these inflows should go a long way to improve the supply situation when it comes to the forex market,” he stressed.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

  • MPC’s 126th in session; key considerations are falling inflation, currency pressures and tariff risks

    MPC’s 126th in session; key considerations are falling inflation, currency pressures and tariff risks

    The Monetary Policy Committee of the Bank of Ghana began its 126th regular meeting on Monday, September 15, 2025, with a focus on key developments shaping the economy.

    That’s a steady fall in inflation and the recent marginal slip of the cedi on the foreign exchange market.

    The meeting will review current economic conditions and set the tone for the policy direction of the central bank.

    At its last meeting in July, the Monetary Policy Committee of the Bank of Ghana cut the policy rate by 300 basis points to 25 percent. It came on the back of five consecutive months of easing inflation.

    But with consumer inflation slipping further to 11.5 percent in August, already below the year-end target of 11.9 percent, the market expects another rate cut this month, supported by favourable base effects.

    However, the Committee faces risks that could temper its policy stance.

    Global trade tensions and a potential hike in utility tariffs remain upside threats to the inflation outlook. With this in mind, the Committee may be cautious with the rate.

    On the local currency front, Governor Dr. Johnson Asiama has downplayed the recent slippage. He attributes the blips to seasonal trade pressures rather than a reversal of earlier stability gains.

    Though a tough time for the Committee, its deliberations will conclude with a press conference on Wednesday, September 17, 2025 where the policy rate decision and the central bank’s outlook for the economy will be announced.

  • Banks reducing interest rate amidst monetary policy rate tightening 

    By Adnan Adams Mohammed

     

     

    The Bank of Ghana’s Monetary Policy Committee (MPC) in the past two months tightened the monetary policy rate to 28 percent for the months of March and April. 

     

    The central bank’s Governor, Dr Johnson Asiama, last week, announced that the benchmark MPR was being maintained at 28%, for the next two months. This is the rate it had been hiked to at the end of March when the MPC voted for a 100 basis point increase from the previous 27% it had inherited from the previous BoG administration.

     

    The position of MPC to keep the MPR was expected by most monetary economists despite some positive adjustments in the country’s macroeconomic indicators. 

    While borrowers will be disappointed that the recent strong gains in Ghana’s key performance indicators did not translate into a cut in the benchmark MPR, Dr Asiama correctly pointed out that, the restoration of macroeconomic stability is already driving down interest rates across board, despite the central bank’s continued tight monetary policy to squeeze out stubbornly high headline inflation, the Ghana Reference Rate – which is set by the Ghana Association of Banks and serves as the base lending rate for the industry – fell from 29.31% at the start of this year, to 23.99% by April. 

     

    Similarly, the average lending rate charged by banks, fell from 30.25% to 27.40% over the same period. This is despite the 100 basis points increase in the benchmark  MPR in late March. 

     

    Pending the release of data for May, it is safe to assume that this trend of falling interest rates is continuing. Between January and April, the 91 day treasury bill rate fell much more sharply than lending rates, from 27.73% to 15.47%, while the 182 day bill declined from 28.43% to 16.23% and the 264 day bill fell from 29.95% to 18.62%. Instructively, at the most recent weekly tender of government treasury bills – concluded at the same time the MPC was deciding to retain the MPR at 28% – the 91 treasury bill interest rate reached a new low of 14.93%, with the 182 day bill rate having fallen to 15.55% and the 364 day bill having declined to 16.00%.

     

    Based on interest rate trends over the previous couple of months this suggests that lending rates are likely to have fallen further during current month of May and look set to continue declining over the coming weeks, despite the MPR having been retained at 28%.

     

    It is instructive that despite the ongoing decline in interest rates, lending rates remain positive in real, inflation adjusted terms, and the negative gap between treasury bill rates and inflation, although inordinate, looks set to dissipate as inflation edges lower towards the central bank’s target for end of 2025  of 11.9%.

     

    Meanwhile, explaining the decision to maintain the MPR at 28%, Dr Asiama  noted that “The latest forecast points to continued easing of inflationary pressures on the back of tight monetary policy stance, exchange rate stability, and fiscal consolidation. Inflation is expected to ease faster towards the medium-term target in the first quarter of 2026 as opposed to the second quarter as earlier envisaged, barring unanticipated shocks.

     

    “Despite these positive developments, the Committee observed that the current level of inflation remains high relative to the medium-term target and will require maintaining the tight stance to reinforce the disinflation process. Under the circumstances, the Committee, by a unanimous decision, maintained the policy rate at 28.0%.”

     

    The BoG now expects inflation to end the year at 11.9%, down from 21.4% currently, and fall further into its medium term target range of between 6% and 10% by the first quarter of 2026.