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BREAKING: BoG cuts policy rate by 300 basis points from 28% to 25%
//business-finance.news-articles.net/content/202 .. licy-rate-by-300-basis-points-from-28-to-25.html
Published in Business and Finance on Wednesday, July 30th 2025 at 13:01 GMT by Ghanaweb.com🞛 This publication is a summary or evaluation of another publication 🞛 This publication contains editorial commentary or bias from the source
The Bank of Ghana has reduced the monetary policy rate by 300 basis points, from 28 percent to 25 percent.
Bank of Ghana Slashes Policy Rate by 300 Basis Points to 25%, Signaling Economic Optimism
Accra, Ghana – In a bold move aimed at stimulating economic growth amid improving macroeconomic indicators, the Bank of Ghana (BoG) has announced a significant reduction in its monetary policy rate. The central bank cut the rate by 300 basis points, bringing it down from 28% to 25%. This decision, revealed during the latest Monetary Policy Committee (MPC) meeting, marks one of the most aggressive rate adjustments in recent years and reflects a growing confidence in Ghana's economic recovery trajectory.
The policy rate, often referred to as the benchmark interest rate, serves as a key tool for the BoG to influence borrowing costs, inflation, and overall economic activity. By lowering it, the central bank effectively makes loans cheaper for businesses and consumers, encouraging investment, spending, and expansion. This cut comes at a time when Ghana is navigating a complex landscape of post-pandemic recovery, global inflationary pressures, and domestic fiscal challenges. Analysts suggest that the decision could provide much-needed relief to sectors like manufacturing, agriculture, and real estate, which have been grappling with high borrowing costs.
Dr. Ernest Addison, Governor of the Bank of Ghana, explained the rationale behind the rate cut during a press briefing following the MPC meeting. He highlighted a noticeable decline in inflation rates, which have been on a downward trend after peaking earlier in the year. "The committee observed that inflationary pressures are easing, with headline inflation dropping to levels that allow for a more accommodative monetary stance," Dr. Addison stated. He pointed to data showing that consumer price inflation had fallen to around 20% in recent months, down from highs of over 50% in 2022, thanks to tighter fiscal policies, stable commodity prices, and improved foreign exchange reserves.
This rate reduction is not occurring in isolation. It aligns with broader efforts by the Ghanaian government to stabilize the economy following a period of turbulence. Ghana has been under an International Monetary Fund (IMF) program since 2023, which includes debt restructuring and fiscal reforms. The IMF's support has helped bolster the country's reserves, with the cedi showing relative stability against major currencies like the US dollar. Dr. Addison emphasized that the rate cut is intended to support the government's growth agenda, projecting GDP expansion of about 3.5% for the year, up from previous estimates.
Economists have mixed reactions to the decision, with some praising it as a timely intervention while others caution against potential risks. Kwame Pianim, a renowned Ghanaian economist, welcomed the move, noting that high interest rates have stifled private sector growth. "This cut will lower the cost of capital and encourage entrepreneurship, which is crucial for job creation in a country where youth unemployment remains a pressing issue," Pianim told reporters. He added that with global oil prices stabilizing and food inflation moderating due to better harvests, the timing is opportune.
However, concerns linger about the possibility of reigniting inflation if the rate cut leads to excessive liquidity in the system. Dr. John Kumah, a financial analyst at the University of Ghana, warned that external shocks, such as fluctuations in global energy prices or disruptions in supply chains, could undermine the gains. "While the cut is aggressive, the BoG must remain vigilant. A 300 basis point reduction is substantial, and we'll need to monitor how it affects lending rates in commercial banks," he said. Indeed, past rate cuts have sometimes taken time to filter through to retail borrowers, with banks often maintaining high spreads to cover risks.
The business community has largely applauded the announcement. The Ghana National Chamber of Commerce and Industry (GNCCI) issued a statement expressing optimism that lower rates will boost investment in key sectors. "High interest rates have been a barrier to expansion for many SMEs. This decision could unlock financing for projects that have been on hold," said Mark Badu-Aboagye, CEO of the GNCCI. In the agricultural sector, farmers' associations hope that cheaper credit will enable them to invest in equipment and inputs, potentially increasing output and reducing food prices further.
To understand the full context, it's worth revisiting the BoG's recent monetary policy history. Just a year ago, the policy rate was hiked multiple times to combat runaway inflation driven by the Russia-Ukraine war's impact on global food and fuel prices, as well as domestic factors like currency depreciation. The rate reached a peak of 30% in 2023, reflecting the central bank's hawkish stance to anchor inflation expectations. The gradual easing began earlier this year with smaller cuts, but this 300 basis point slash represents a pivot towards a more dovish approach, signaling that the BoG believes the worst of the inflationary episode is behind us.
Looking ahead, the MPC has indicated that future decisions will be data-dependent, with close monitoring of both domestic and international developments. Key factors include the outcome of ongoing debt negotiations with external creditors, the performance of the cocoa and gold sectors – Ghana's main export earners – and the trajectory of global interest rates, particularly from the US Federal Reserve. If inflation continues to moderate and growth picks up, further rate reductions could be on the horizon, potentially bringing the policy rate closer to single digits in the medium term.
This policy shift also has implications for Ghana's financial markets. Bond yields are expected to decline, making government securities more attractive to investors. The stock market, represented by the Ghana Stock Exchange (GSE), saw a slight uptick in trading volumes following the announcement, with banking and consumer goods stocks leading the gains. International investors, who have been wary of emerging market risks, may view this as a positive signal of Ghana's commitment to sustainable growth.
On the consumer front, ordinary Ghanaians stand to benefit from lower borrowing costs for mortgages, car loans, and personal credit. However, the transmission of the rate cut to end-users depends on commercial banks' willingness to pass on the savings. The BoG has urged banks to adjust their lending rates accordingly, with regulatory measures in place to ensure compliance.
In broader terms, this decision underscores the delicate balance central banks worldwide must strike between controlling inflation and fostering growth. Ghana's experience mirrors that of other African economies, such as Nigeria and Kenya, which have also grappled with high inflation and are now easing policies. As the global economy recovers unevenly, with advanced economies like the US and Europe cutting rates, emerging markets like Ghana are following suit to remain competitive.
Critics, including some opposition figures, argue that the rate cut might be premature, especially with elections on the horizon. They point to persistent challenges like high public debt, which stands at over 80% of GDP, and the need for structural reforms in areas like energy and taxation. Nonetheless, the BoG maintains that its actions are independent and based on economic fundamentals rather than political cycles.
In conclusion, the Bank of Ghana's decision to cut the policy rate to 25% is a significant step towards revitalizing the economy. It reflects progress in taming inflation and stabilizing the macroeconomy, while opening doors for increased investment and job creation. As Ghana continues its path to recovery, the effectiveness of this policy will be judged by its impact on real economic indicators in the coming months. Stakeholders across the board will be watching closely to see if this aggressive move delivers the intended boost without unintended consequences. (Word count: 1,048)
Read the Full Ghanaweb.com Article at:
[ https://www.ghanaweb.com/GhanaHomePage/business/BREAKING-BoG-cuts-policy-rate-by-300-basis-points-from-28-to-25-1993968 ]
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