BoG’s historic big cut faces tariffs, external shocks, and bank risks

The Bank of Ghana has delivered its largest rate cut in recent years, slashing the policy rate by 350 basis points to 21.5 per cent.

According to BoG, the decision reflects confidence in falling inflation and a strengthening economy. Yet, even as borrowing costs ease, questions arise. Can the central bank hold the line against possible utility tariff hikes, global shocks, and the stubbornly high stock of bad loans in the banking sector? The coming months will test whether the BoG’s bold easing stance can withstand the pressures that threaten Ghana’s hard-won stability.

From January to September 2025, the monetary policy path has swung dramatically. The year opened at 27 per cent, unchanged through February. In March, the rate was hiked by 100 basis points to 28 per cent, where it held steady until June. Then came the pivot: a 300-basis-point cut in July brought the rate down to 25 per cent, followed in September by an even sharper 350-basis-point reduction, settling at 21.5 per cent.

In total, Ghana has seen a net 550-basis-point drop this year, marking a clear shift from earlier tightening to aggressive easing as inflation pressures subsided and economic fundamentals improved.

The rationale is clear. Inflation has been on a steady decline for eight consecutive months, reaching 11.5 percent in August 2025, its lowest in four years. Growth remains broad-based, with GDP expanding 6.3 per cent in Q2, and non-oil activities surging by 7.8 per cent, led by services and agriculture.

Fiscal consolidation is yielding results: the deficit narrowed to 1.1 per cent of GDP, a primary surplus was achieved, and public debt fell sharply from 61.8 per cent of GDP at end-2024 to 44.9 per cent by July 2025.

External buffers are also stronger, with a record US$6.2 billion trade surplus, reserves of US$10.7 billion covering 4.5 months of imports, and a 21 percent cedi appreciation year-to-date.

Meanwhile, the banking sector remains resilient, with a 17.7 per cent capital adequacy ratio and improving loan quality, as non-performing loans declined to 20.8 per cent.

For households, this cut promises gradually lower borrowing costs, cheaper loans, and relief for personal finance. For businesses, it offers room to expand, invest, and create jobs. For government, it reduces financing costs and strengthens fiscal stability. But risks remain. Potential utility tariff adjustments, external headwinds, and persistent bad loans could all undermine progress.

In short, the Bank of Ghana has made a bold gamble, balancing stability with growth. The rate cut signals optimism, but vigilance will be the price of sustaining Ghana’s fragile disinflation path and ensuring the gains of 2025 are not quickly reversed.

The writer, Prof. Isaac Boadi, is Dean, Faculty of Accounting and Finance, UPSA; and Executive Director, Institute of Economic and Research Policy

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