A sustained decline in inflation, renewed strength in the local currency, and a significant buildup in foreign reserves were the key factors that shaped the latest policy move by the Bank of Ghana, according to submissions from members of its Monetary Policy Committee.
The Committee last week announced a cut in the Monetary Policy Rate (MPR) by 350 basis points to 18 percent, but internal deliberations show the decision was chiefly influenced by rapidly improving macroeconomic conditions rather than a simple push for looser credit.
At the heart of the decision was inflation, which has fallen sharply over the past year and now sits at the central bank’s medium-term target of 8 percent. Inflation has declined for ten consecutive months, dropping from 23.8 percent in December 2024 to 8 percent in October 2025, with both food and non-food prices easing significantly. Core inflation indicators have followed the same trend, reinforcing the view among Committee members that price pressures are no longer systemic.
Members noted that the disinflation process has been broad-based and supported by currency stability, favorable food supply conditions, and the Bank’s tight monetary stance throughout the year. Forecasts presented to the Committee indicate inflation could fall further to between 5 and 6 percent by the end of 2025, signalling what one member described as “a strong and sustained disinflationary trend.”
Another major driver of the easing decision was the marked improvement in external sector performance. Ghana’s foreign reserves have climbed to US$11.4 billion, equivalent to 4.8 months of import cover, providing a strong buffer against external shocks. The balance of payments recorded a surplus, while the current account saw a sharp turnaround on the back of strong gold and cocoa exports and increased private transfers.
The cedi has also staged a remarkable recovery, appreciating by over 32 percent against the US dollar so far this year. MPC members attributed this to increased transparency under the new foreign exchange framework, a weaker dollar globally, strong export receipts, and the central bank’s disciplined interventions in the currency market. The strengthened cedi, in turn, has reduced imported inflation and further anchored inflation expectations.
On the domestic front, economic activity has gathered pace, with GDP growth reaching 6.3 percent in the first half of the year, led by agriculture and services. High-frequency data such as the Composite Index of Economic Activity and business confidence surveys also pointed to continued economic expansion through the third quarter.
The fiscal outlook has also improved markedly. Ghana recorded a primary surplus of 1.6 percent of GDP by September 2025, reflecting tighter expenditure controls and a stronger commitment to fiscal discipline. Committee members said this consolidation has helped reduce financing pressures and reinforced investor confidence in the economy.
Despite these gains, the MPC cautioned that risks remain. Members flagged possible shifts in US Federal Reserve policy and geopolitical tensions as potential threats to global stability, with knock-on effects for capital flows and commodity prices.
However, with inflation firmly on a downward path, reserves rising, and the cedi strengthening, the Committee concluded that maintaining extremely high interest rates was no longer justified. Real interest rates currently stand above 13 percent—levels members believe are stifling private sector credit and investment.
Chairing the discussions, majority members argued that recalibrating policy was necessary to align interest rates with market conditions and support economic recovery without jeopardizing the disinflation process.
The Committee also announced a return to the use of the 14-day bill as the main open market instrument, a move aimed at improving liquidity management and policy transmission in the banking system.
