News Guide Africa

Tag: Monetary Policy Rate

  • BoG’s sharp benchmark interest rate cut to lower lending, deposit rates

    BoG’s sharp benchmark interest rate cut to lower lending, deposit rates

    Ghana’s banking sector is preparing to lower both lending and deposit rates after the Bank of Ghana delivered a second consecutive large easing step in 2025, but bankers warn that the transmission to customers rates will be uneven and may take time.

    The central bank cut its Monetary Policy Rate by 350 basis points to 21.5% on September 17, 2025, following an earlier record 300 basis points reduction on July 30, 2025. Taken together the two moves have lowered the policy rate by 650 basis points over two consecutive Monetary Policy Committee meetings a dramatic shift from the tight monetary stance that prevailed through 2024 and early 2025.

    Bank chiefs and industry groups say the cuts should, in time, feed through into lower bank reference rates and commercial lending alleviating the cost burden on businesses and households.

    John Awuah, Chief executive of the Ghana Association of Banks told local media ahead of the previous MPC decision made in July that bank expected a substantial easing and that “a material cut in the policy rate should pave the way for significant reductions in lending rates,” a sentiment banker have reiterated after the September cut.

    But several constraints will temper how quickly and how far headline rates fall. Banks cite legacy funding costs, the need to rebuild balance sheet cushions after recent financial sector stress, and high yields on outstanding 180 day and 364-day treasury bills issued and invested in before the sharp fall in rates over the past few months, as reasons for cautious phased adjustments to customer pricing. Industry data show that average lending rates have already been trending down from about 31.6% as at the start of 2025 to roughly 27.0% by June and 24.15% by August– suggesting transmission is underway but incomplete.

    “Policy easing creates room for banks to reduce rates, but the pace depends on deposits and the relative attractiveness of government paper” said an economist who follows Ghana’s financial sector. “Banks will seek to protect margins and remain capital compliant while they reprice. “

    That view echoes public comments from the BoG which signaled confidence in continued disinflation while urging banks to support the recovery by moderating lending rates. Indeed, the BoG Governor, Dr Johnson Asiama, last week said the central bank now expects inflation to fall to within its medium-term target of between 6% and 10% before the end of the year.
    On the deposit side, bankers say retail rates will fall more slowly. Retail deposit rates are sticky; many banks rely on older, higher cost term deposits placed during earlier, higher-rate months, and customer bahaviour especially demand for real returns in an economy recovering from macro-stress – will influence how quickly institutions are willing to lower advertised savings rates.

    “We expect a phased approach; wholesale and short-term corporate pricing will adjust first, retail rates later,” one senior bank executive said on condition of anonymity.

    Analysts point to several indicators to watch for the speed of pass through. The BOG’s short term reference yields and interbank rates are key; a sustained decline in market reference rates typically forces banks to trim their reference and minimum lending rates. So far market reference rates have fallen but remain higher than pre-crisis norms, leaving space for further compression.

    Rating agency commentary also matters; Fitch recently noted that most Ghanaian banks were on track to be capital compliant once regulatory forbearance ends, a condition that should bolster confidence but also incentivize prudence on interest margin compression.

    How banks translate a lower MPR into cheaper credit will also depend on the risk outlook. Non – Performing Loans (NPLs) the mix of corporate versus retail loan book, and foreign exchange linked exposures influence banks willingness to cut rates.

    “Lenders with stronger deposit franchises and lower NPLs will be the first movers” said Leslie Dwight Mensah, an economist with the Institute of Fiscal Studies in Accra. “For others, capital preservation will remain a priority.”

    Market watchers expect the initial impact to show in reference rate announcements and in some wholesale lending lines within weeks, with broad retail mortgage small and medium sized enterprises and consumer lending repricing over the coming months. For businesses that rely on short term working capital, even modest cuts in reference rates could meaningfully reduce finance costs; for savers, the effects will be muted until banks unwind higher cost deposit stock. Analysts stress the final effect on bank profitability will be an outcome of the speed of asset repricing versus the rollback of deposit costs.

    Regulators and policymakers appear to be nudging the banks towards faster transmission. The BoG’s statement accompanying the September rate cut decision emphasized monitoring progress on inflation and signaled continued vigilance, while industry bodies have publicly encouraged banks to translate easier policy into lower lending rates to support growth.
    Whether market level transmission lives up to those calls depends on banks’ balance sheet dynamics and competition for deposits.

    By Toma Imirhe

     

  • Economist red-flags quantum of policy rate cut

    Economist red-flags quantum of policy rate cut

    A renowned economist has raised concerns over the Bank of Ghana’s cut in its Monetary Policy Rate by 350 basis points to 21.5% amid potential inflationary pressures.

    He posited that the central bank should have been more measured in slashing the policy rate, cautioning of a possible reversal of the ongoing downward inflationary trend due to a pending utility tariffs rise.

    Although the interest rate cut is expected to stimulate economic activity, the economics Professor at the University of Ghana, Patrick Asuming, has raised concerns that the central bank may be underestimating short-term risks to price stability. However, the Governor of the Bank of Ghana, Dr Johnson Asiama dismissed such fears, explaining that anticipated cocoa inflows, donor support, gains from the recent forex crackdown, and rising gold prices all point to a favourable outlook for the cedi and accompanying continued disinflation.

    Dr Johnson Asiama, while addressing the press conference after the BoG’s Monetary Policy Committee (MPC) meetings and MPR decision last week, further noted that regulatory measures had led to a significant rise in remittances, prompting a review of the Bank’s year-end targets, which remain on track, while indicating that there was no plan to revise the end-of-year inflation target of 11.9%, despite improvements in the economy’s performance and consequent circumstances.

    Meanwhile, Prof Asuming, reacting to the MPC decision in a radio interview, described the steep rate cut as premature.

    “Personally, I think that it is quite aggressive. Even if there was going to be a cut, considering that at the previous meeting there was a substantial cut, I would have thought that if there was going to be a cut, it would be rather moderate,” he said.

    He explained that with expected adjustments in electricity and water tariffs pending, inflationary pressures could resurface, undermining the effectiveness of such a sharp rate cut.

    The policy rate used by the BoG to influence lending rates and inflation—plays a critical role in shaping borrowing costs for businesses and households.

    Contrary to the worry of Prof Asuming, the Director of Research at the Bank of Ghana (BoG), Dr. Philip Abradu-Otoo, has explained how the central bank arrives at its decision on the key policy rate, stressing that every factor that affects how businesses and consumers spend is taken into account.

    According to him, the process is far more complex than many assume.

    “The things that go into deciding as to where to put the key policy rate of a central bank involve many factors.

    “The committee in arriving at this decision discusses issues about the real sector of the economy,” he said in an interview.

    He explained that the real sector remains central to the decision-making process.

    “So, when we talk about the real sector of the economy, we are talking about how businesses are faring. We’re talking about how consumers are also faring, and whether consumers are feeling the pinch of economic adjustment that is taking place, whether spending in the economy is at a level that is consistent with what the fiscal authorities, for instance, might expect, because the more we spend, the more the fiscal authorities are also able to extract revenues for development purposes.”

    Dr Abradu-Otoo noted that the Bank of Ghana has developed its own way of gauging the performance of the real sector, even as it relies on official data from the Ghana Statistical Service.

    “So, when we talk about the real sector of the economy, it’s about what you and I are doing in the economy. It’s about what businesses are doing in the economy.

    “And we try to gauge the tempo of all these activities in the economy – imports, exports, all these things fit under the real sector of the economy.”

    The central bank, he said, does not only look at economic activity but also the direction of prices.

    “We try to gauge activities in the real sector of the economy. We try to look at what is going on with respect to prices, (which) you call inflation.

    “And then we try to even look at what the forecast of all these indicators looks like, especially for inflation, and are we getting close to our target?”

    He added that the banking sector’s role is also weighed in policy decisions.

    “And having done this, we also look at even the banking sector, are they positioned in a way to help support growth in the economy, because the main job of banks in the country is to support growth. Okay, so are banks well-positioned to deliver growth in the economy?”

    The process, he said, then factors in risks to ensure the final decision is sustainable.

    “And having done that, we then look at the risks surrounding all these things, and then we try to put all these things together in a framework to decide as to whether going forward, we should be confident about ourselves, and whether going forward we think that the risks are very minimal, and whether we can then reposition our key policy rate to deliver continued growth sustainably. I think the keyword is sustainable.”

  • Cedi’s free fall; sharp inflation rise push policy rate to 22%

    Cedi’s free fall; sharp inflation rise push policy rate to 22%

    By Elorm Desewu

    The speed depreciation of the fiat currency, the cedi and sharp rise in year on year inflation have compelled the Monetary Policy Committee, (MPC) of the Bank of Ghana to hike the policy rate by 300 basis points to settle at 22 percent from 19 percent.

    This means that cost of credit to households and the private sector would rise steadily in the next couple of months.

    But in a swift attempt to stem the rising inflation as well as the speed depreciation of the cedi, the BoG has raised the primary reserve requirement of banks from 12 percent to 15 percent which is to be implemented in a phased manner: i. 13 percent from 1 st September, 2022 ii. 14 percent by 1st October, 2022 iii. 15 percent by 1st November, 2022

    Additionally, to boost the supply of foreign exchange to the economy, the Bank of Ghana is working collaboratively with the mining firms, international oil companies, and their bankers to purchase all foreign exchange arising from the voluntary repatriation of export proceeds from mining, and oil and gas companies. This will strengthen the central bank’s foreign exchange auctions.

    According to the BoG, the Ghana Cedi has depreciated by 25.5 percent year-to-date, reflecting the Ghana specific situation, including the challenging financing of the budget from both domestic and external sources, downgrading of sovereign credit rating, non-residents disinvestment in local currency bonds, and loss of reserve buffers.

    The US Dollar has strengthened against all major currencies. From the beginning of the year to date, the pound sterling has weakened against the US dollar by 12.4 percent while the Euro has also weakened by 11.8 percent. Countries similar to Ghana (Ghana’s peers) are all experiencing sharp depreciation to date.

    Recent developments in the foreign exchange market showed elevated demand pressures, reflecting among others, continued heightening of uncertainties in the global economy, rising inflation in many advanced economies and the resultant coordinated tightening of monetary policy stance by major central banks. This has further tightened global financing conditions with significant implications for Emerging Markets and Developing Economies (EMDEs), especially for those with weak fundamentals.

    The latest consumer price index release showed that the headline inflation accelerated further for the eleventh consecutive month to 31.7 percent in July 2022, from 29.8 percent in June 2022. This was driven by both food and nonfood price pressures.

    Food inflation rose to 32.3 percent in July 2022 from 30.7 percent in June 2022. Similarly, non-food inflation increased to 31.3 percent from 29.1 percent in June 2022, contributing 55 percent to the rise in headline inflation in July 2022.

    The above developments have translated into relatively strong underlying inflationary pressures. The Bank’s core measure of inflation, defined to exclude energy and utility indices, increased to 30.2 percent in July 2022 from 28.4 percent in June.

    On month-on-month basis, headline inflation rose by 3.1 percent in July 2022 compared with 3.0 percent in June 2022. The increase in monthly inflation was underpinned by increases of 3.3 percent and 3.0 percent in food and non-food inflation respectively.

  • BoG likely to hike policy rate further

    BoG likely to hike policy rate further

    By Elorm Desewu

    With the recent price hike in the petroleum products couple with the rise in year on year inflation, the Bank of Ghana is likely to raise the policy rate further by 150 basis points to settle at 20.5 percent from the current 19 percent.

    Recent price developments indicate elevated pressures arising from the sharp increase in global energy and commodity prices, and the consequential effects on rising domestic ex-pump petroleum prices and transportation costs, food prices, as well as the pass-through effects of the recent exchange rate depreciation in the second quarter of 2022.

    The Monetary Policy Committee, (MPC) will from this week begin to review the health of the economy and also announce a new policy rate for the next couple of months. But there strong indication that the BoG would hike the policy rate further in attempt to anchor inflation.

    The policy rate is the rate at which universal banks borrow from the Bank of Ghana as their last resort and also serves as a benchmark in setting the Ghana Reference Rate.

    Figures released by the Ghana Statistical Service, (GSS), indicate that, year on year inflation measured by the Consumer Price Index, (CPI), has inched up to 29.8 percent for the 12 months period ended June 2022, from 27.6 percent recorded in May 2022.

    This represents a two percentage point increase in the inflation rate compared to the 27.6 percent recorded in May 2022.

    The trends suggest that price pressures were increasingly becoming broad-based, reflected in almost all components of the consumer basket, from both domestic and imported sources.

    Non-food inflation went up significantly from 25.7 percent in May to 29.1percent in June 2022, while food inflation also rose from 30.1 percent to 30.7 percent over the same comparative period.

    The upward adjustments in petroleum products and transport fares with attendant second-round effects on goods and services, have pushed up inflation and inflation expectations.

    The heightened uncertainty in energy prices, prolonged global supply chain holdups, the passthrough of the recent exchange rate depreciation, and upward adjustments in ex-pump petroleum prices and transportation costs, present significant upside risks and are expected to exert pressures on domestic prices in the near term.

    The continued uncertainties surrounding food prices is also likely to add to the upside risks to the inflation outlook. On the downside, it is expected that monetary policy tightening, in tandem with the announced fiscal consolidation efforts, would help moderate inflationary pressures in the outlook.

    The risks in the outlook for inflation emanating from both external and domestic sources, as well as triggered by both supply-side and demand-side shocks are clearly on the upside.

    At the May 2022 meeting, therefore, the MPC hiked the policy rate by 200 basis points to 19 percent with the view that it needed to decisively address the current inflationary pressures to re-anchor expectations and help foster macroeconomic stability.

  • Ghana’s policy rate of 19% second highest in Sub-Saharan Africa

    Ghana’s policy rate of 19% second highest in Sub-Saharan Africa

    Ghana’s policy rate of 19% is the second highest in Sub-Saharan Africa after Angola, Fitch Solutions tracking of 20 countries in the region has revealed.

    This is coming after the recent adjustments of the key lending rate of many central banks in the region.

    Ghana’s banking industry has been characterised by high lending rates, making cost of doing business expensive, compared to neighboring Côte d’Ivoire (policy rate of 4%) and Nigeria (policy rate of 11.50%).

    However, this is due to largely weak fiscal economy, compelling the Bank of Ghana to increase its benchmark indicator- the policy rate – to help control the rising inflation as well as the volatility of the cedi.

    The policy rate which is the key indicator that the Central Bank lends to commercial banks have gone up by 5.5% in the last nine months.

    Though some have argued that the Bank of Ghana’s Inflation Targeting framework is not the best tool to fight inflation, the Central Bank has refuted that claim.

    The policy rate is a key determinant of lending rates in the country, but that is not the only factor banks consider in pricing loans.

    Banks will usually not lend below 91-day Treasury bill rate which is presently above 24%.

    The financial intermediaries also prioritise inflation, cost of funds and non-performing loans as some key factors considered before lending.

    Meanwhile, Equatorial Guinea, Cameroon and Gabon have the lowest policy rate of 3.50% each in Sub Saharan Africa.

    COUNTRY POLICY RATE (%)

    Cameroon 3.50

    Guinea 3.50

    Gabon 3.50

    Congo Brazzaville 3.50

    Coted’lvoire 4.00

    Togo 4.00

    South Africa 5.25

    Botswana 5.50

    Tanzania 6.00

    Uganda 7.50

    Congo DRC 7.50

    Kenya 8.00

    Zambia 10.00

    Ethiopia 10.00

    Nigeria 11.50

    South Sudan 12.00

    Malawi 12.00

    Mozambique 15.75

    Ghana 19.00

    Angola 20.00

  • African DFIs tasked to enhance credit rating positions to boost investment

    African DFIs tasked to enhance credit rating positions to boost investment

    Development Finance Institutions across Africa have been tasked to beef up efforts to enhance credit rating positions to attract more global investments.

    According to the Bank of Ghana, access to global debt capital and loan markets continues to remain a problem hence the call for the financial institutions to implement policies that will attract investments on more favourable terms.

    Development Finance Institutions (DFIs) provide risk capital for economic development projects on a non-commercial basis.

    Ghana is currently in the process of setting up such an outfit called the Development Bank Ghana with funding from internal and global partnership sources.

    Among the objectives for setting up the bank is to position certain sectors of the Ghanaian economy to attract the needed global investment.

    Many DFIs across the continent are in the process of positioning their economies for similar investments.

    It is in this regard that the Bank of Ghana is asking these institutions to implement policies that will enhance their ratings in order to attract global investments.

    The Head of Banking Supervision at the Bank of Ghana, Osei Gyasi, was speaking on behalf of the Governor of the Central Bank at the 2022 annual general assembly of the Association of African Development Finance Institutions.

    “African DFIS should work at enhancing credit rating positions. In spite of the large number of African DFIs, access to global debt capital and loan markets continues to be dominated by a few leading multilateral African or regional DFIs largely due to innovations in credit enhancements and structuring. It is imperative, therefore, for DFIS to implement policies that will enhance their ratings in order to attract more global investments on more favourable terms, including longer tenors and lower interest rates.”

    Following the recent increase of the Monetary Policy Rate by 200 basis points to 19 percent due to the high inflation rate, it is expected that the cost of borrowing from financial institutions will go up at least for the next two and half months.

    It is for this reason that banks and other financial institutions will have to review their fees and charges to adjust to the current monetary policy situation.

    Managing Director of the National Investment Bank, Samuel Sarpong spoke to Citi Business News on the sidelines of the meeting.

    He said, “All banks are going through a period o adjusting to the various economic conditions as well as the monetary policy situation. For example, the cost of doing business has gone up significantly with the inflationary rate and all banks are adjusting their rates and fees to make sure that they make profit. So similar to other banks, NIB is looking at its interest rates, fees and cost of doing business and adjusting appropriately just as any other business will do.”

    The 48th Association of African Development Finance Institutions annual general assembly which was hosted by the National Investment Bank was under the theme, ‘Unlocking Innovative Resources for Development Finance Institutions: Agenda for African DFIs’.