Editorial: Policy rate cut by 3%, much to the relief of businesses

The Bank of Ghana (BoG) has lowered its Monetary Policy Rate (MPR) by 300 basis points (bps) to 25 percent, its most aggressive rate cut since the 200 bps cuts in July 2024 and March 2018.

Announced at the 125th Monetary Policy Committee (MPC) meeting’s conclusion, the decision is expected to intensify downward pressure on the Average Lending Rate (ALR) and Ghana Reference Rate (GRR) – both of which have already declined significantly over first-half 2025.

It said the cut was driven by sustained disinflation and broadly anchored inflation expectations, supported by tightening in earlier periods and continued fiscal consolidation.

As headline inflation fell to 13.7 percent in June, its lowest level since December 2021, the Committee signalled that monetary conditions can now afford to ease further in support of credit expansion and private sector recovery.

The ALR, which captures average cost of bank credit to borrowers, fell from 30.75 percent in January to 27 percent in June 2025 – a cumulative decline of 375 bps.

BoG has indicated that it stands ready to lower rates further should the disinflation trend persist. Governor Dr. Johnson Pandit Asiama said the Committee’s decision reflects improved confidence in the inflation outlook and a more stable macroeconomic environment.

Interest rates at the short-end of the money market have also fallen in recent months, reducing cost of government borrowing and reinforcing the broader easing cycle.

Economist and Finance Lecturer-University of Ghana Business School, Professor Patrick Asuming, has however questioned the Bank of Ghana’s decision to cut its benchmark policy rate by 300 basis points, describing the move as aggressive and surprising.

He had anticipated a more moderate adjustment which could have been either a 100 basis point cut or a hold, arguing that while indicators have improved the economy is not yet fully out of the woods.

A more cautious approach, he argues, would have provided room to better assess the durability of recent economic gains.

This notwithstanding, the Ghana National Chamber of Commerce and Industry (GNCCI) earlier called on the Bank of Ghana (BoG) to reduce the Monetary Policy Rate (MPR) by at least 300 basis points – or 3% – to provide much-needed relief to businesses and fuel private sector growth.

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