BoG must help synchronise market rates
The Bank of Ghana (BoG) has delivered one of the most significant monetary policy shifts in recent economic history.
After years of aggressive rate hikes that pushed the policy rate to punitive levels, the central bank’s decision to cut rates by 300 basis points to 25 per cent marks a fundamental shift towards economic stimulation, the largest single reduction in the institution’s history.
This significant development is not merely a statistical adjustment but a restoration of confidence in Ghana’s economic recovery trajectory.
The country’s inflation has fallen to 13.7 per cent, indicating steady progress in price stability, while businesses have faced borrowing costs of 20 to 23 per cent that have hindered growth and innovation.
Commercial banks are expected to recalibrate their lending rates downward by week’s end, translating policy intent into market reality.
The implications of this rate revolution extend well beyond banking sector balance sheets, as high interest rates have been stifling economic activity across all sectors.
For ordinary Ghanaians, lower borrowing costs mean access to affordable credit for housing, education, and small business ventures—opportunities that have largely been out of reach during the high interest rate environment.
Small and medium-sized enterprises (SMEs), which form the backbone of job creation, can now consider expansion plans without the burden of crippling debt service costs.
Perhaps most notably, the rate cut indicates the BoG’s confidence that inflation has been sufficiently controlled to focus on economic growth rather than price stability.
When monetary authorities show such conviction, it encourages businesses to move beyond survival mode and start planning for real expansion and investment.
The international community has already taken notice of Ghana’s improved economic fundamentals. The policy rate reduction alongside other positive indicators reinforces the narrative of an economy that has turned the corner from crisis to recovery.
This improvement opens doors to increased investor confidence and signals to global markets that Ghana is serious about balanced economic management.
For the business community, predictable and falling interest rates indicate the return of reliable long-term planning. Companies can assess multi-year projects without constantly having to consider steep financing costs.
This is particularly crucial for sectors such as manufacturing and agriculture, where investment horizons extend well beyond immediate returns.
While it is fitting to celebrate this monetary policy breakthrough, the Graphic Business believes this should not overshadow the work necessary to sustain its advantages.
The Chief Executive Officer (CEO) of the Ghana Association of Banks (GAB), John Awuah, has identified the need for market rate synchronisation, and achieving this will require coordinated efforts across various policy areas.
First, our monetary authorities must ensure that all market rates from treasury bills to open market operations move in harmony rather than sending conflicting signals to investors.
The current disconnect between the 25 per cent policy rate, 9.5 per cent open market operations rate and 10 per cent treasury bill rates creates market confusion that undermines the intended impact of policy decisions.
Every percentage point of misalignment represents missed opportunities for coherent economic signalling.
Second, the Graphic Business joins calls for addressing structural impediments that could constrain credit flow despite lower policy rates.
The tiered required reserve ratio system, with some banks maintaining reserves of about 25 per cent, represents another layer of monetary tightening that must be examined.
Banks need adequate liquidity to translate lower policy rates into affordable lending for businesses and individuals.
The central bank’s reserve requirements and other prudential measures require urgent review to ensure they complement rather than contradict the accommodative monetary stance.