The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has cut the rate at which it lends to commercial banks, otherwise known as the policy rate, by 300 basis points to 25 per cent, the biggest reduction since inflation targeting started in May 2007.
This is expected to enable financial institutions to lend more and at cheaper rates to many segments of their customers to enhance business operations and create jobs for many Ghanaians.
The decision was occasioned by recent improvements in the economy, including a decline in inflation, a large trade surplus, strengthened external buffers and a stable local currency.
Addressing a press conference in Accra yesterday after the 125th MPC, the Governor of the Bank of Ghana (BoG), Dr Johnson Pandit Asiama, stated that the reduction in the policy rate was made on account of a majority decision of members of the committee.
“The 300 basis points cut is the largest seen in the history of the central bank.
The disinflation we have seen in the last five months is the sharpest in history and so, the reduction should not surprise you,” the Governor said.
Buoyant economy
On the domestic front, Dr Asiama said the economy was buoyant in the first quarter of 2025, with Gross Domestic Product (GDP) growth rate of 5.3 per cent, compared to 4.9 per cent in the same quarter of 2024, driven by increased activity in the agriculture and services sectors.
He said excluding oil, the economy grew by 6.8 per cent compared to 4.3 per cent over the same comparative period.
The Governor said beyond the first quarter, the bank’s high frequency real sector indicators pointed to sustained pickup in economic activity.
The Composite Index of Economic Activity (CIEA), which the BoG measures with real sector data, grew by 4.4 per cent year-on-year, in May this year compared to 3.4 per cent in the same period of last year.
He said international trade activities, consumption, construction and tourist arrivals contributed to the improvement in economic activity during the period.
Headline inflation
Since the last MPC meeting, Dr Asiama said headline inflation had declined further to 13.7 per cent in June 2025 from 18.4 per cent in May, the lowest reading since December 2021.
He said the deceleration was underpinned by the tight monetary policy stance, fiscal consolidation, easing food supply constraints, as well as the strong recovery of the cedi.
“In line with the easing underlying inflation pressures, the bank’s main core inflation measure, which excludes energy and utility items, has declined markedly,” he said.
Monetary aggregates
Governor Asiama maintained that growth in monetary aggregates remained subdued during the first half of the year, primarily due to the tight monetary policy stance, strong liquidity management, and reduced government borrowing.
He said in line with the disinflation process and easing inflation expectations, interest rates at the short end of the money market had declined sharply, and in turn, reduced the cost of government borrowing.
“Data on budget execution indicated a strong commitment to fiscal consolidation as expenditures adjusted within set targets to accommodate the revenue shortfalls during the first half of 2025”.
“As a result, the overall fiscal deficit on commitment basis was 0.7 per cent of GDP, outperforming the budget target of 1.8 per cent of GDP,” he said.
He said the deficit was largely financed from domestic sources.
Public debt
At end-June 2025, he said public debt declined to 43.8 per cent of GDP from 61.8 per cent of GDP at end-December 2024, due to the appreciation of the cedi, lower domestic borrowing, and the external debt restructuring.
He said in the banking sector, the financial soundness indicators reflected continued asset growth, improved solvency, liquidity, profitability and efficiency in the first half of the year.
Improved external sector
Dr Asiama stated that the external sector had improved markedly, with a record current account surplus of $3.4 billion in the first half of 2025, supported mainly by higher prices and increased production volumes of gold and cocoa.
“The current account surplus, together with the outturns in the capital and financial accounts, culminated in an overall balance of payment surplus of $2.2 billion, significantly higher than the $588.5 million recorded in June 2024.
“On this score, Gross International Reserves stood at $11.1 billion at end-June 2025, equivalent to 4.8 months’ import of goods and services, compared to $8.9 billion (4.0 months of import cover) as at end-December 2024,” he said.
The Governor maintained that from the beginning of the year to July 25, 2025, the cedi appreciated by 40.7 per cent against the United States dollar, 31.2 per cent against the British pound, and 24.2 per cent against the euro.
He said overall, the committee noted that macroeconomic conditions had significantly improved, inflation expectations were broadly anchored, external buffers had strengthened, and confidence in the economy was returning.
Consumer confidence surged to 119.2 points in June this year, from 103.6 in April and 100.2 points in February, this year.
Similar, business confidence increased to 105.5 points, from 102.2 points in April and 99.7 points in February.
Consumer and business confidence levels recorded 81.2 points and 88.8 points respectively over the same period last year.
He said the July forecast also showed that headline inflation was expected to decline further in the third quarter of 2025.
