The Bank of Ghana (BoG) has raised its benchmark Monetary Policy Rate (MPR) by 100 basis points to 28%, its highest level in over a decade, while unveiling additional liquidity measures to combat inflation and stabilize the cedi.
The decision, announced on March 31, reflects the central bank’s tightening stance amid inflation that remains elevated at 23.1% as of February 2025, down only marginally from 23.8% in December 2024.
Governor Dr. Johnson Asiama outlined three operational reforms: the introduction of a 273-day open market instrument to absorb excess liquidity, stricter enforcement of banks’ foreign exchange exposure limits, and a review of the Cash Reserve Ratio (CRR) framework. The moves aim to enhance monetary policy transmission and curb speculative pressures on the cedi, which has lost 15% against the dollar this year.
“Monetary policy must remain tight to anchor inflation expectations,” Asiama said, noting global economic uncertainties and domestic fiscal risks as key concerns. The new 273-day security expands the BoG’s sterilization toolkit, allowing more precise control over money supply. Meanwhile, intensified monitoring of banks’ Net Open Positions (NOPs) seeks to reduce dollar hoarding and stabilize the foreign exchange market.
While inflation has dipped slightly, core inflation—excluding volatile food and energy prices—remains stubborn at 19.6%, driven by transportation costs and a weakening currency. The private sector, which saw credit growth rebound to 12% in 2024, now faces higher borrowing costs, with commercial lending rates expected to exceed 35%.
Market reactions have been divided. “The rate hike signals seriousness, but businesses will bear the pain,” said Kwame Addo, an Accra-based financial analyst. Bond yields surged following the announcement, with 5-year government securities rising 80 basis points.
The BoG’s aggressive stance mirrors challenges across frontier markets, where central banks balance inflation control against fragile growth. Ghana’s economy, which expanded by 2.8% in 2024, remains vulnerable to commodity price swings and delayed debt restructuring talks with international creditors.
Historically, Ghana’s CRR adjustments have had mixed success. A 2023 hike to 15% initially slowed credit growth but triggered liquidity crunches for small banks. The latest review suggests potential tiered requirements to ease pressure on community lenders.
With the IMF’s $3 billion bailout program set to expire in mid-2025, analysts warn that sustained fiscal discipline is critical. “Monetary tools alone can’t fix structural deficits,” cautioned economist Nana Ama Aggrey. “Without curbing government spending, rate hikes risk stagflation.”
As global interest rates remain high, Ghana’s policy choices underscore the precarious path emerging economies navigate between stability and growth—a dilemma unlikely to ease soon.
