By Grace Zigah
The Bank of Ghana has voted unanimously to maintain its benchmark Monetary Policy Rate (MPR) at 28.0 percent, citing a cautiously optimistic domestic outlook tempered by global uncertainties.
The decision was taken at the 124th Monetary Policy Committee (MPC) meeting held from May 21 to 23, 2025, and marks a continuation of the central bank’s strategy to anchor inflation and preserve macroeconomic stability amid external volatility.
In a significant complementary move, the Bank announced an amendment to the Dynamic Cash Reserve Ratio (CRR) policy.
Effective June 5, 2025, banks are now required to hold reserve requirements in the same currency as the deposit—foreign reserves for foreign currency deposits and domestic currency for cedi deposits.
This marks a strategic shift to reinforce exchange rate stability and improve currency management.
Economic Background
This decision comes in the backdrop of Ghana’s continued recovery under the IMF’s Extended Credit Facility (ECF) programme.
The economy has been making steady gains in fiscal consolidation, reserve accumulation, and exchange rate stability since the challenging periods of high inflation and a debt restructuring programme in 2023–2024.
Inflation has been on a declining trend for four consecutive months, though it remains elevated.
The consumer price index (CPI) shows food inflation fell from 28.1% in February to 25.0% in April, while non-food inflation declined to 17.9% over the same period.
These trends have helped reduce inflation expectations and eased demand-side pressures, according to MPC members.
Global Concerns
The Committee noted that global economic uncertainty, particularly stemming from evolving U.S. trade policy, is weighing on world growth prospects.
Tensions between the U.S. and major trading partners, although eased slightly by a 90-day truce with China, have caused global disinflation to stall and raised concerns over prolonged restrictive financial conditions.
This has affected emerging markets, including Ghana, through trade disruptions and capital flow volatility.
MPC members emphasized that despite these headwinds, Ghana’s economy has shown resilience, underpinned by strong performance in the external sector, stable currency, and improving investor sentiment.
International reserves have reached $10.7 billion, providing 4.7 months of import cover, largely due to robust gold and cocoa exports and healthy remittance inflows.
Domestic Recovery Strengthens
Members highlighted improved domestic economic activity, citing high-frequency indicators such as the Composite Index of Economic Activity (CIEA) and the Purchasing Managers’ Index (PMI).
Both suggest robust growth momentum supported by growing business confidence and consumer optimism.
The Ghana Reference Rate, which guides lending in the banking sector, declined from 29.3% in December 2024 to 23.9% in April 2025, signaling easing credit conditions.
While private sector credit growth is gradually picking up, some concerns linger around the quality of bank assets, particularly non-performing loans (NPLs).
Though marginally improved, NPLs remain elevated, prompting calls from the Committee for strengthened risk management practices and recapitalization efforts for undercapitalized banks.
Despite progress in inflation management, members were unanimous in their caution.
Inflation remains above 20.0 percent, and the end-2025 target of 12.0 percent remains distant.
Members noted upside risks from potential utility tariff hikes, global food price pressures due to climate events, and residual effects of global economic instability.
All six MPC members advocated for holding the policy rate steady to “anchor inflation expectations”, allow disinflation to continue, and consolidate macroeconomic gains.
They concurred that a tight policy stance remains critical to bring inflation down to the medium-term target.
Policy Continuity Amid Recovery
In summary, the May 2025 MPC decision reflects a strategic balancing act. While recognizing improved domestic fundamentals—strong reserves, currency appreciation, and a rebound in confidence—the Committee remains focused on maintaining policy tightness to support inflation reduction and macroeconomic stability.
The MPC’s next decision will be published after its July 2025 meetings, with markets likely to watch closely for further signs of easing inflation and the trajectory of global financial conditions.
