BoG’s policy anchor stability, easing borrowing costs
Basic economics and Ghana’s own experience since economic liberalisation in the 1980s offer a clear lesson.
When credit becomes cheap and liquidity expands too quickly, pressure soon builds on the cedi. Currency depreciation follows, inflation resurfaces and interest rates are forced up again. It is a cycle the country knows too well.
Since mid-2025, however, the Bank of Ghana has managed to loosen interest rates without reigniting that familiar spiral.
The result has been a rare combination in Ghana’s recent macroeconomic history: easing borrowing costs alongside exchange rate stability and sharply lower inflation.
From crisis to control
Ghana entered 2025, still recovering from a prolonged macroeconomic crisis.
Inflation had peaked above 50 per cent in earlier years, the cedi had suffered sustained volatility, and interest rates were punitive for businesses and households alike.
By early 2026, the headline numbers told a different story.
Consumer inflation fell rapidly, dipping to 3.8 per cent in January 2026, below the central bank’s six to 10 per cent target band and the lowest since 2021.
Against that backdrop, the Bank of Ghana cut its policy rate decisively.
From 28 per cent, it reduced the rate by 300 basis points to 25 per cent in July 2025, followed by a further 350 basis points to 21.5 per cent in September, another 350 basis points to 18 per cent in November, and 250 basis points to 15.5 per cent by January 2026.
Market rates responded. Interbank rates and 91-day Treasury bill yields declined sharply.
Average commercial bank lending rates fell from about 30.5 per cent to 22.2 per cent by late 2025, easing further into 2026.
The Ghana Reference Rate, which guides base lending rates for commercial banks, dropped to 15.68 per cent in January 2026 from 29.72 per cent a year earlier.
Under normal circumstances, such an aggressive easing cycle could have triggered renewed exchange rate pressure.
Cheaper credit often fuels demand for imports and foreign currency. Yet the cedi strengthened instead.
By mid-2025, the currency had appreciated by more than 40 per cent against the US dollar, reversing earlier losses.
External buffers improved, trade balances strengthened, and exchange rate volatility subsided.
Beneath rate cuts
The key to this balancing act was not the rate cuts themselves, but what happened behind the scenes: strict control of liquidity.
While interest rates were falling, growth in monetary aggregates was kept in check.
Broad money supply expanded in line with underlying economic activity rather than speculative demand.
By December 2025, broad money stood at roughly GH¢314 billion, reflecting structural liquidity needs rather than an uncontrolled credit boom.
Crucially, reserve money growth slowed markedly. It expanded by 12.5 per cent in 2025, compared with 47.8 per cent in 2024.
Broad money growth moderated to 16.5 per cent from 31.9 per cent over the same comparative period.
These figures point to deliberate liquidity sterilisation. The central bank intensified open market operations, reduced claims on banks, and tightened net domestic assets.
After deploying 56-day bills for much of 2025, it reverted to 14-day bills, allowing for closer and more responsive liquidity management.
In effect, the Bank of Ghana lowered the price of money, but not its uncontrolled quantity. That distinction proved decisive.
Credit without excess
Lower lending rates did support private sector activity, but not at a reckless pace. Private sector credit growth moved from contraction earlier in 2025 to moderate positive expansion by year-end.
Non-performing loans declined, suggesting improved asset quality even as rates fell.
This is not a trivial outcome. In many emerging markets, monetary easing can quickly move into renewed risk-taking, asset bubbles and foreign exchange pressures.
Ghana’s experience since mid-2025 suggests a more cautious expansion, with banks maintaining prudent underwriting standards.
The external environment also played a supportive role.
Strong gold export receipts boosted foreign reserves and strengthened the trade balance.
Reduced reliance on foreign borrowing further insulated the cedi from speculative shocks.
Fiscal consolidation reinforced the credibility of the broader macroeconomic framework.
Still, it was the disciplined monetary stance that anchored expectations.
By preventing a surge in excess liquidity, the central bank reduced the incentive for economic agents to convert cedis into foreign currency in anticipation of depreciation.
Guarding the gains
Looking ahead, the policy challenge is clear. With inflation subdued and growth recovering, pressure will mount for further easing to stimulate investment and job creation.
Governor Dr Johnson Asiama has expressed confidence in the macroeconomic trajectory, while cautioning against complacency.
The Bank of Ghana has signalled that lending rates could fall further, possibly into single digits by late 2026, provided inflation remains contained and external conditions are stable.
Yet risks remain. Commodity price swings, geopolitical tensions, or domestic fiscal slippages could quickly test the current equilibrium.
Ghana is also approaching the expected completion of its IMF-supported programme in August 2026, a milestone that will require sustained policy credibility beyond programme conditionalities.
The central lesson from the past year is that monetary easing need not mean monetary excess.
By cutting rates while maintaining tight control over liquidity and money supply growth, the Bank of Ghana has, at least for now, broken the old cycle of depreciation and inflation.
The real achievement is not simply lower inflation or a stronger cedi. It is the restoration of policy credibility. Stability anchored in discipline, rather than temporary relief, offers a firmer foundation for durable growth.
