The Bank of Ghana (BoG) has raised the Monetary Policy Rate (MPR) by 100 basis points to 28% in an effort to curb inflationary pressures and restore price stability in the economy.
This decision, announced on March 28, 2025, follows the conclusion of the 123rd regular meeting of the Bank’s Monetary Policy Committee (MPC).
The move highlights the central bank’s response to persistent inflation, economic uncertainty, and global financial pressures that continue to impact both domestic and international markets.
Global Economic Strains and Risks
The global economic landscape in 2024 showed resilience, bolstered by strong real income growth and less restrictive monetary policies compared to the previous year.
However, the first quarter of 2025 has witnessed heightened uncertainty, primarily driven by trade tensions, geopolitical instability, and the risk of a tariff war, especially between the U.S. and other global powers.
These factors have dampened investor sentiment, affected business and consumer confidence, and stoked concerns over global growth.
Inflationary pressures remain a challenge in advanced economies, where services and goods inflation have shown resistance to decline.
The resurgence of tariff actions by the U.S. has exacerbated these inflationary dynamics, creating a complex backdrop for both emerging and advanced economies.
Consequently, global inflation is expected to remain elevated, complicating monetary policy decisions across the world.
Global financial conditions remain restrictive, with high monetary policy rates, rising long-term bond yields, and volatile equity markets.
Despite this, certain central banks, such as the European Central Bank, have opted to cut their policy rates to stimulate growth, while others like the Federal Reserve and the Bank of Japan have maintained their rates in light of rising uncertainty.
Domestic Economic Developments
At home, Ghana’s economy has shown signs of growth, surpassing initial expectations.
Preliminary data from the Ghana Statistical Service (GSS) estimates real GDP growth at 5.7% for 2024, significantly higher than the programmed growth of 4%.
The country’s industrial and services sectors have been key drivers of this growth, although the agricultural sector has lagged due to adverse weather conditions.
The Bank of Ghana’s Composite Index of Economic Activity (CIEA) has also risen by 5.7% year-on-year in January 2025, signaling an uptick in economic activity.
This growth is reflected in improved consumer and business sentiments, as well as an increase in private sector credit.
The latest confidence surveys show an optimistic outlook for the country’s economic future, driven by expectations for macroeconomic improvements.
However, inflation remains stubbornly high, hovering at around 23%, well above the Bank’s expectations.
While there was a marginal easing from 23.8% in December 2024 to 23.1% in February 2025, inflation remains a major concern, with food inflation being particularly high due to unfavorable weather conditions and supply-side constraints.
The core measure of inflation, excluding energy and utility costs, has also shown only a slight improvement.
Banking and Fiscal Sector Performance
The banking sector in Ghana continues to demonstrate resilience.
The sector’s total assets grew by 34% in February 2025, and the capital adequacy ratio (CAR) improved to 14.4%, signaling a stronger buffer against potential risks.
Additionally, the ratio of non-performing loans (NPLs) has decreased, reflecting improvements in the quality of bank assets.
However, the Bank of Ghana remains vigilant about the potential risks posed by undercapitalized banks, continuing to monitor credit risks closely.
On the fiscal side, the government’s fiscal stance was more expansionary than anticipated in 2024, with the fiscal deficit rising to 7.9% of GDP compared to the target of 3.8%.
This was driven by higher-than-expected expenditures. Despite this, early signs of fiscal consolidation are emerging, with improved fiscal performance in the early months of 2025, aided by the debt restructuring process and the commitments outlined in the 2025 budget.
External Sector and Commodities Outlook
In the external sector, Ghana’s export performance has been strong, particularly in gold, which saw prices surge past US$3,000 per ounce in March 2025.
This growth, alongside higher export receipts from gold and cocoa, helped the country maintain a positive trade balance in early 2025.
Imports, however, have increased slightly by 7.3% year-on-year, driven by higher demand for goods.
The country’s international reserves have also improved, with the gross reserves reaching US$9.4 billion by the end of February 2025, providing a buffer for import cover and supporting the stability of the cedi.
This accumulation of reserves is in line with the expectations set under the IMF program, bolstered by the continued success of the Gold-for-Reserves initiative and growing remittance inflows.
Inflationary Pressures and Monetary Policy Adjustments
Despite the positive growth trajectory, inflation remains a key challenge for the BoG.
The persistence of inflation, particularly in food and non-food sectors, as well as core inflation, has raised concerns.
The central bank’s primary objective remains the re-anchoring of inflation to its target range, and the decision to raise the MPR by 100 basis points to 28% underscores its commitment to this goal.
The Bank of Ghana has also introduced additional operational measures to strengthen liquidity management and improve the transmission of monetary policy.
These include the introduction of a 273-day instrument to complement the existing sterilization tools, enhanced monitoring of banks’ Net Open Positions (NOPs), and a review of the Cash Reserve Ratio (CRR) structure to assess its impact on liquidity conditions and financial intermediation.
