Editorial: Policy Rate stayed at 14%, citing escalating Mid-East tensions

The Bank of Ghana 130th Monetary Policy Committee (MPC) meeting maintained its benchmark monetary policy rate at 14 percent, citing rising external inflation risks linked to escalating tensions in the Middle East.

Governor Dr. Johnson Pandit Asiama announced at the meeting’s conclusion that the central bank will amend the dynamic cash reserve ratio (CRR) framework to a uniform 20 percent reserve requirement maintained entirely in domestic currency, effective June 4, 2026.

This marks another adjustment to the Bank’s reserve management regime following reforms introduced in May 2025, when banks were required to maintain reserves in the same currencies as their deposit liabilities.

Dr. Asiama said the committee considered it necessary to review the framework after assessing its outcomes over time. He added that the revised framework will complement the Bank’s liquidity management operations and support transmission of monetary policy.

The central bank will engage commercial bank executives ahead of implementation to clarify operational implications of the revised reserve requirement.

Liquidity tightening measures come alongside the MPC’s decision to hold the benchmark policy rate steady, as policymakers weigh rising external risks against easing domestic inflationary pressures.

According to the Bank, ongoing conflict in the Middle East has disrupted trade routes, increased energy prices and heightened global policy uncertainty. The Strait of Hormuz blockade has contributed to rising crude oil prices and renewed inflationary pressures in both advanced and emerging market economies.

The International Monetary Fund has revised down its 2026 global growth forecast to 3.1 percent from an earlier estimate of 3.3 percent, with further downward revisions possible if the conflict persists.

The MPC warned that prolonged geopolitical tensions could keep crude oil prices above                 US$100 per barrel, increasing the likelihood of fuel price pass-through into transport and utility costs domestically.

Despite these external risks, the Bank said domestic economic activity remains resilient. The Composite Index of Economic Activity expanded by 12.6 percent year-on-year in March 2026 compared with 2.3 percent growth a year earlier, supported by stronger private sector credit growth, industrial production, consumption and trade activity.

Private sector credit grew by 28.7 percent in nominal terms for April 2026 compared with 19.9 percent growth during the same period last year. In real terms, credit expanded by 24.5 percent after contracting by 1.1 percent a year earlier.

Financial conditions also continued to ease. The benchmark 91-day Treasury bill yield declined to 4.9 percent in April from 15.5 percent a year earlier, while average bank lending rates fell to 16.3 percent from 27.4 percent.

However, the central bank cautioned that elevated credit risk remains a concern and said banks will be required to adhere strictly to prudential guidelines aimed at reducing bad loans.

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