Cedi rally, inflation retreat set stage for possible rate cut

By Ebenezer Chike Adjei NJOKU

Dr. Johnson Pandit Asiama, Bank of Ghana (BoG) Governor, has given the strongest hint yet that the monetary authority will cut its benchmark Monetary Policy Rate (MPR) as economic indicators strengthen across multiple fronts

In remarks during the 125th Monetary Policy Committee (MPC) meeting opening – initially scheduled to take place from Monday, July 28, 2025 to Wednesday July 30, 2025 but brought forward to Thursday, July 17, 2025 – the Governor suggeted that recalibration is the natural response to six consecutive months of declining inflation, a dramatic strengthening of the cedi and need to further support the real economy.

He highlighted that headline inflation had fallen to 13.7 percent in June, down from 23.8 percent in December 2024 and representing the lowest level since December 2021.

The sustained disinflation has been accompanied by a 42.6 percent year-to-date appreciation of the cedi against major trading currencies.

“As we begin today’s deliberations, the key question is whether the current macroeconomic configuration permits a recalibration of the policy stance. With inflation expectations more firmly anchored, external buffers strengthened and confidence returning, we must assess how to support the recovery without compromising the gains achieved,” Dr. Asiama said.

The Governor’s remarks come as multiple economic indicators point to strengthening fundamentals, with foreign reserves having exceeded US$11billion – equivalent to 4.8 months of import cover.

Meanwhile the country recorded a provisional trade surplus of US$5.6billion in first-half 2025, supported by robust gold and cocoa export receipts.

Private sector credit growth has accelerated to 19.9 percent in April 2025, up from 10.8 percent a year earlier – a pointer to improved lending conditions as banks’ balance sheets strengthen.

Furthermore, the central bank’s Composite Index of Economic Activity rose 4.4 percent yearly in May while purchasing managers’ index readings have shown rising business and consumer confidence.

Real Gross Domestic Product (GDP) expanded by 5.3 percent for first-quarter 2025, driven by strong performance in agriculture and services sectors.

Non-oil GDP growth reached 6.8 percent, suggesting broad-based economic recovery beyond the traditional oil-dependent sectors.

The external position has shown marked improvement, with the current account surplus widening to US$3.4billion over the year’s first half.

Improved investor sentiment, bolstered by Ghana’s IMF-supported programme and better credit ratings, has strengthened foreign exchange inflows.

However, Dr. Asiama cautioned that risks remain. The 7.9 percent fiscal deficit recorded in 2024 continues to create pressure despite the 2025 budget’s commitment to fiscal consolidation.

Liquidity conditions remain relatively tight, requiring careful monitoring of policy transmission effectiveness – particularly to credit channels and productive sectors.

Global economic conditions add another layer of complexity. World growth is projected slowing to 2.8 percent for 2025 from 3.3 percent in 2024, while financial conditions remain tight amid elevated interest rates internationally. Oil prices have stabilised around US$69.8 per barrel, but geopolitical risks and trade tensions continue to cloud the outlook.

The Governor emphasised that any policy adjustments would need to “support the recovery without compromising the gains achieved” in inflation and external stability.

He urged committee members to focus on “forward-looking risks, policy trade-offs and credible guidance to markets”.

The central bank has maintained an aggressive anti-inflation stance since 2022, raising rates to combat price pressures that peaked at 54.1 percent that year.

“Inflation expectations are more firmly anchored, external buffers strengthened and confidence is returning,” Dr. Asiama noted.

The timing of any further rate cuts will depend on continued progress with inflation reduction and evidence that the current economic recovery can be sustained, the Governor noted.

The MPC’s decision is expected today, in what could serve as a boost for business investment and consumer spending as businesses have routinely accessed loans at more than 30 percent despite the effective Ghana Reference Rate for July 2025 standing at 23.69 percent.

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