The Bank of Ghana (BoG) has raised the Monetary Policy Rate to 28%, a decision aimed at addressing persistent inflationary pressures and ensuring macroeconomic stability.
The announcement was made by the newly appointed Governor of the Central Bank, Dr. Johnson P. Asiama, during the March 2025 Monetary Policy Committee (MPC) press briefing.
“The Monetary Policy Committee has decided to increase the Policy Rate to 28% in response to prevailing inflationary pressures and exchange rate volatility,” Dr. Asiama stated adding “this measure is necessary to anchor inflation expectations and reinforce stability in the economy.”
The decision comes as Ghana continues to battle inflationary pressures, exchange rate depreciation, and global financial uncertainties.
Inflation
Dr. Asiama noted that headline inflation declined from 23.2% in December 2024 to 21.4% in February 2025. However, he emphasized that inflation remains above the central bank’s target range, necessitating continued policy tightening.
“While inflation has moderated in recent months, the pace of decline remains slow. Food inflation, in particular, has been volatile, influenced by both external supply chain disruptions and domestic agricultural constraints,” he explained.
He added that underlying price pressures remain high, with core inflation measures indicating persistent challenges. As a result, the Bank of Ghana deemed it prudent to increase the policy rate to further contain inflation expectations.
Exchange Rate
The exchange rate remains a major concern, with the cedi depreciating by 4.7% against the U.S. dollar in the first quarter of 2025. Dr. Asiama attributed this to sustained demand pressures in the foreign exchange market.
“In the foreign exchange market, we have observed continued demand for foreign currency, which has exerted pressure on the cedi. To address this, the Bank of Ghana remains committed to ensuring adequate foreign exchange liquidity,” he assured.
As of March 2025, Ghana’s Gross International Reserves stood at US$5.9 billion, providing 2.7 months of import cover. While this is deemed adequate, Dr. Asiama cautioned that further depreciation risks could arise from external shocks and speculative activities.
Monetary Policy
Dr. Asiama also highlighted the central bank’s strategy in managing liquidity conditions in the financial sector. He noted that while private sector credit growth has shown signs of improvement, excessive liquidity could pose inflationary risks.
“Private sector credit is recovering as confidence in the banking sector improves. However, monetary conditions must remain tight to prevent excessive liquidity growth, which could fuel inflationary pressures,” he stated.
The Governor reiterated that the Bank of Ghana would closely monitor liquidity trends and intervene where necessary to ensure stability in the financial system.
Fiscal Policy
Dr. Asiama stressed the need for strong fiscal discipline to complement the central bank’s efforts in maintaining macroeconomic stability. He urged the government to sustain its fiscal consolidation agenda to avoid macroeconomic imbalances.
“The fiscal outlook has improved, but it is critical that the government continues to enhance revenue mobilization and control expenditures,” he said. He warned that any fiscal slippages could undermine monetary policy efforts, making it essential for the government to maintain discipline in public financial management.
Banking Sector
Addressing Ghana’s banking sector performance, Dr. Asiama reassured that the financial system remains stable and well-capitalized. “The banking industry continues to show resilience, with improvements in capital adequacy, profitability, and asset quality,” he noted.
However, interest rates remain elevated, posing challenges for businesses and individuals seeking credit. He acknowledged the concern, but stated that monetary policy tightening was necessary to control inflation before lending conditions can ease.
“As inflation declines further, we expect a gradual reduction in lending rates, which will improve access to credit for businesses and consumers,” Dr. Asiama assured.
Following the announcement, financial markets responded cautiously, with investors assessing the potential impact of the 28% policy rate on borrowing costs and economic growth.
Dr. Asiama expressed confidence that the rate hike would yield positive long-term results.
“We are fully aware of the trade-offs involved in monetary tightening, but our primary objective remains price stability and macroeconomic sustainability,” he stated.
