Ghana Central Bank Cuts Interest Rate to 18 Percent as Inflation Falls to Four-Year Low

The Bank of Ghana has implemented its third consecutive aggressive interest rate reduction, lowering the monetary policy rate by 350 basis points from 21.5 percent to 18 percent following the conclusion of the central bank’s 127th Monetary Policy Committee meeting on November 26, 2025. This decisive monetary easing marks a pivotal moment in Ghana’s economic recovery, as the West African nation emerges from one of its most severe macroeconomic crises in recent decades.

Governor Johnson Asiama announced the rate decision during a press briefing in Accra, citing an improved macroeconomic outlook and expectations for further declines in consumer inflation. The move brings Ghana’s benchmark rate to its lowest level in more than three years and reflects growing confidence among policymakers that the country’s rapid disinflation trend is sustainable.

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Historic Monetary Easing Cycle

The bank has now lowered its main interest rate by a cumulative 1,000 basis points in 2025, following cuts of 300 basis points in July and 350 basis points in September. This aggressive easing cycle represents a dramatic reversal from the tight monetary policy stance that characterized Ghana’s response to the inflation crisis that peaked at over 54 percent in December 2022.

The latest rate cut exceeded economists’ forecasts of a 250 basis point reduction to 19 percent, demonstrating the Monetary Policy Committee’s confidence in the strength of Ghana’s economic fundamentals. The decision reflects what policymakers describe as a “measured approach” that balances the need to support economic growth recovery while maintaining price stability.

Governor Asiama emphasized that the prevailing high real interest rates provided some scope to ease monetary policy to further boost the growth recovery efforts. With inflation now firmly within the central bank’s target range and real interest rates remaining elevated, the committee determined that additional monetary accommodation was appropriate to accelerate Ghana’s economic expansion.

Inflation Returns to Single Digits

Ghana’s inflation performance has been nothing short of remarkable. Headline inflation dropped from 9.4 percent in September 2025 to 8.0 percent in October 2025, marking the tenth consecutive monthly decline and representing the lowest inflation rate recorded since June 2021. This achievement places Ghana back within the Bank of Ghana’s target band of between 6 percent and 10 percent, a milestone that seemed distant just months ago.

The Ghana Statistical Service reported that the Consumer Price Index for October 2025 stood at 257.0, with month-on-month inflation actually declining by 0.4 percent—a rare occurrence that signals genuine price stability rather than merely slower price growth. This deflationary trend represents a dramatic turnaround from January 2025, when headline inflation stood at 23.5 percent.

Food inflation fell sharply to 9.5 percent in October from 11.0 percent in September, supported by favorable base effects and increased food supply resulting from the ongoing harvest season. Non-food inflation also eased to 6.9 percent from 8.2 percent, demonstrating that disinflation has been broad-based across the economy rather than concentrated in specific sectors.

Government Statistician Dr. Alhassan Iddrisu described the decline as a positive indication of progress toward macroeconomic stability, attributing it to ongoing measures to strengthen the cedi, improved food supply conditions, and sustained fiscal management. He emphasized that the October numbers confirm that Ghana’s inflation trajectory is firmly downward and increasingly stable.

Central Bank Projects Continued Stability

Looking ahead, Governor Asiama expressed confidence that inflation is estimated to remain around the target band well into the first half of 2026. The Bank of Ghana has projected that inflation will continue its downward trend and settle between 6-8 percent by the end of 2025, providing policymakers with additional room to support economic growth through accommodative monetary policy.

The central bank’s optimistic inflation outlook is underpinned by several factors: a tight monetary policy stance that has successfully re-anchored inflation expectations, significant build-up of international reserves providing an anchor for exchange rate stability, and continued fiscal consolidation by the government. These elements combine to create what the Monetary Policy Committee views as a sustainable environment for price stability.

The committee noted that given the anticipated significant decline in inflation by the end of the year, the tight monetary policy stance, and the significant build-up of reserves, there is scope to continue easing policy rates to support growth without jeopardizing the hard-won gains in price stability.

Commercial Banks Begin Passing Rate Cuts to Consumers

The aggressive monetary policy easing by the Bank of Ghana is beginning to translate into lower borrowing costs for businesses and households. According to the Bank of Ghana’s November 2025 Summary of Economic and Financial Data, the average cost of borrowing stood at 22.22 percent in October 2025, down dramatically from 30.07 percent in January 2025.

This represents a decline of nearly 800 basis points in average lending rates over just ten months, providing significant relief to borrowers across the economy. The Ghana Reference Rate has also fallen sharply to 17.86 percent in October 2025, from 29.72 percent in January 2025, reflecting the transmission of central bank policy rate cuts through the financial system.

Lower interest rates are expected to stimulate credit growth and support private sector expansion. From 7.1 percent contraction in May 2025, private sector credit growth, in real terms, has improved to 5.4 percent in October 2025, indicating that businesses and consumers are beginning to increase borrowing as financing costs decline and economic confidence improves.

The improvement in lending conditions is particularly significant given Ghana’s recent history of extremely tight credit conditions. At the peak of the crisis, real interest rates were deeply negative due to soaring inflation, discouraging savings and distorting capital allocation. The current environment of positive real interest rates combined with declining nominal rates represents a healthier equilibrium that should support sustainable economic growth.

Economic Growth Gaining Momentum

Ghana’s economic performance has exceeded expectations throughout 2025, providing justification for the central bank’s pivot toward monetary accommodation. Growth in the first half of 2025 was stronger than anticipated, reaching 6.3 percent, underpinned by strong services activity and agricultural output that more than offset weakness in the extractive industries.

The services sector has been a particularly bright spot, expanding by 9.5 percent in August 2025, well above the 2.6 percent posted in the same month the previous year. Strong activity in information and communications technology and education drove the sector’s momentum, with services accounting for nearly 80 percent of total growth in August.

Agriculture also recorded impressive performance, growing by 7.4 percent in August 2025 compared with 2.3 percent in August 2024. The sector contributed more than a quarter of total growth for the period, benefiting from favorable weather conditions and government support programs aimed at boosting food security and rural incomes.

However, the industrial sector has faced challenges, contracting by 1.8 percent in August 2025, reversing the 9.1 percent expansion recorded the previous year. This weakness reflects ongoing challenges in the manufacturing and construction subsectors, where high energy costs and credit constraints have weighed on activity.

Looking ahead, the International Monetary Fund projects that positive momentum is expected to continue into 2026, with growth projected at 4.8 percent. The organization forecasts that inflation will remain within the Bank of Ghana’s target band of 8±2 percent, allowing for gradual monetary policy normalization that should support continued economic expansion.

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External Sector Strengthens Dramatically

One of the most impressive aspects of Ghana’s economic turnaround has been the dramatic improvement in the external sector. International reserves accumulation continues to exceed the Extended Credit Facility-supported program targets, while the cedi has appreciated markedly against major foreign currencies.

Governor Asiama revealed that gross international reserves stood at about $10.7 billion as of August 2025, providing a robust cushion against external volatility and restoring investor confidence. This represents the highest level of reserves in years and provides the central bank with substantial firepower to intervene in foreign exchange markets when necessary to smooth excessive volatility.

The external sector has improved noticeably on robust exports—particularly gold and cocoa. Ghana has benefited significantly from the unprecedented rally in global gold prices, with the precious metal reaching record highs above $3,200 per ounce. As Africa’s largest gold producer, Ghana has seen a windfall in export earnings that has supported both reserves accumulation and currency appreciation.

The Ghana cedi has appreciated by 37.4 percent year-to-date as of October 17, 2025, making it the best-performing currency in Sub-Saharan Africa in the first eight months of 2025, according to the World Bank. This remarkable turnaround comes after years of sharp depreciation that contributed to Ghana’s inflation crisis and debt sustainability challenges.

The Bank of Ghana supported the foreign exchange market with $264.4 million in March 2025 alone to preserve the stability of the cedi. These interventions reflect the growing size of Ghana’s gross international reserves and the consequent ability to both provide forex liquidity in the local market and directly intervene when deemed necessary.

Fiscal Consolidation Supports Monetary Policy

The successful disinflation and monetary easing have been made possible by significant fiscal discipline from the government. Budget performance over the first nine months was marked by strong fiscal consolidation, with revenue and grants falling below target by 4.7 percent, while expenditure was below target by 15 percent.

This resulted in an overall fiscal deficit on commitment basis of 1.5 percent of GDP, better than the target deficit of 3.2 percent of GDP. The primary balance on commitment basis recorded a surplus of 1.6 percent of GDP, compared with the target of 1.0 percent, demonstrating the government’s commitment to fiscal responsibility.

The authorities are committed to adopting a 2026 budget targeting a 1.5 percent of GDP primary surplus on a commitment basis, in line with the recently adopted Fiscal Responsibility Framework. This medium-term fiscal consolidation path is essential for ensuring debt sustainability and maintaining the macroeconomic stability that has been achieved over the past year.

Finance Minister Dr. Cassiel Ato Forson has reaffirmed the government’s commitment to fiscal consolidation as the country prepares to exit its International Monetary Fund program. He projected a primary budget surplus of 1.5 percent of GDP by 2026, with Ghana’s overall fiscal deficit expected to narrow from a projected 2.8 percent in 2025 to 2.2 percent in 2026.

IMF Program Completion on Track

Ghana’s economic stabilization has been supported by a three-year Extended Credit Facility program with the International Monetary Fund worth approximately $3 billion. The IMF reached a staff-level agreement with Ghanaian authorities in October 2025 on the fifth review of Ghana’s economic program under the Extended Credit Facility arrangement.

Finance Minister Dr. Cassiel Ato Forson confirmed that the Government has achieved all six Quantitative Performance Criteria and four Indicative Targets for the review period. He described the agreement as a powerful validation of the disciplined and comprehensive strategy pursued over the past nine months under President John Mahama’s administration.

Upon completion of the Executive Board review expected by the end of December 2025, Ghana would have access to $385 million, bringing the total IMF financial support disbursed to approximately $2.6 billion since the program began in May 2023. The successful completion of the fifth review positions Ghana to potentially exit the IMF program as scheduled in 2026.

The IMF has noted that macroeconomic stabilization is taking root in Ghana, with growth stronger than anticipated, inflation returning to single digits for the first time since 2021, and robust exports boosting international reserves. The organization has praised Ghana’s policy reforms aimed at restoring macroeconomic stability, though it emphasizes the importance of maintaining fiscal discipline beyond the program period.

Debt Restructuring Progress

A critical component of Ghana’s economic recovery has been the successful restructuring of the country’s unsustainable debt burden. Following the signing of a Memorandum of Understanding with the Official Creditor Committee under the G20 Common Framework, bilateral agreements have been concluded with five countries, covering approximately $5.4 billion in bilateral debt.

Ghana also reached a deal with over 90 percent of holders of its $13 billion Eurobond portfolio, marking a significant milestone in its efforts to restore debt sustainability. The country successfully completed a domestic debt exchange, achieving approximately 85 percent participation from eligible bondholders.

These debt restructuring deals have been instrumental in restoring investor confidence and providing Ghana with fiscal space to pursue growth-oriented policies while maintaining debt sustainability. Ghana’s debt trajectory improved markedly on an upgraded macroeconomic outlook and continued fiscal discipline, representing a significant step toward long-term debt viability.

The successful debt restructuring has also allowed Ghana to resume some debt service payments, with Eurobond service resuming in 2025 and domestic coupon payments continuing. This normalization of debt service demonstrates Ghana’s commitment to meeting its obligations while maintaining the fiscal discipline necessary for sustainable growth.

Financial Sector Reforms

Beyond monetary policy, the Bank of Ghana has undertaken significant reforms to strengthen the financial sector and enhance its capacity to support economic growth. The authorities have taken strong actions to support financial stability, including implementing a strategy to restructure and reform state-owned banks, addressing gaps in the crisis management and resolution framework, and implementing a multi-pronged strategy to address non-performing loans.

The recapitalization of state-owned banks is expected to be completed by end-2025, strengthening the banking sector’s ability to support credit growth and economic expansion. The banking sector shows gradual recovery, with improved asset growth and profitability, though non-performing loans remain elevated and require continued attention.

In collaboration with the IMF, the Bank of Ghana has developed a structured foreign exchange operations framework to intermediate FX flows and smooth excessive market volatility while accumulating international reserves. This framework has contributed to the cedi’s stability and helped reduce speculative activity in the foreign exchange market.

Daily exchange rates are now determined using a weighted median of interbank forex market transactions, an approach that enhances both price discovery and overall market efficiency. This reform has promoted transparency and reduced the scope for speculative currency trading that previously contributed to exchange rate volatility.

Regional Economic Leadership

Ghana’s successful economic stabilization has positioned the country as a potential model for other African nations facing similar macroeconomic challenges. The combination of fiscal discipline, prudent monetary policy, comprehensive debt restructuring, and structural reforms has demonstrated that even countries facing severe crises can achieve rapid turnarounds with appropriate policy frameworks and international support.

The Ghana cedi’s performance as the best-performing currency in Sub-Saharan Africa has attracted attention from investors and policymakers across the continent. Governor Asiama has emphasized that the currency’s strength reflects hard-won stability achieved through sometimes unpopular but principled decisions, including fiscal consolidation by government, a tight monetary policy stance by the Bank of Ghana, and renewed confidence from the investor community.

Looking ahead, Ghana’s challenge will be to sustain the macroeconomic gains achieved over the past year as the country exits IMF support and faces the test of maintaining discipline without external oversight. Market watchers have cautioned that maintaining fiscal discipline after the program ends in 2026 will be challenging, prompting some donor partners to call for additional safeguards to protect economic stability.

Outlook and Risks

While Ghana’s economic outlook has improved dramatically, significant challenges and risks remain. The government forecasts economic growth of at least 4.8 percent in 2026, up from an estimated 4.0 percent in 2025. However, this projection depends on continued fiscal discipline, stable commodity prices for Ghana’s key exports, and the successful transmission of monetary policy easing to support private sector growth.

External risks remain significant, largely on account of lingering uncertainty regarding commodity prices for Ghana’s key exports, particularly gold and cocoa. Any significant decline in gold prices from current elevated levels could reduce export earnings and pressure both international reserves and the exchange rate. Similarly, challenges in the cocoa sector, including aging trees and climate-related production issues, could constrain this important source of foreign exchange.

Domestically, the energy sector continues to present fiscal risks despite recent reforms. The government has renegotiated legacy arrears and power purchasing agreements with most independent power producers, and tariff adjustments are now conducted quarterly to better reflect costs. However, payments through the Cash Waterfall Mechanism need to increase further to ensure financial sustainability in the sector.

The sustainability of Ghana’s fiscal position beyond the IMF program period remains a critical question. While the government has demonstrated strong commitment to fiscal discipline under the Extended Credit Facility, past experience suggests that countries often experience fiscal slippage after IMF programs conclude. Maintaining the primary surplus targets enshrined in the Fiscal Responsibility Framework will require continued political will and effective public financial management.

Conclusion

Ghana’s decision to cut its benchmark lending rate by 350 basis points to 18 percent represents a significant milestone in the country’s economic recovery journey. The aggressive monetary easing reflects the Bank of Ghana’s confidence that inflation has been durably reduced and that supporting growth through lower interest rates will not jeopardize price stability.

The combination of single-digit inflation for the first time in four years, robust international reserves exceeding $10 billion, a dramatically strengthened currency, and stronger-than-expected economic growth demonstrates that Ghana’s comprehensive reform program is delivering results. The successful completion of the fifth IMF program review and progress on debt restructuring further underscore the country’s improved macroeconomic fundamentals.

However, Governor Asiama’s careful messaging that “we are not yet where we want to be, but we are no longer where we were” captures the appropriate balance of cautious optimism and continued vigilance. Sustaining Ghana’s macroeconomic gains will require continued fiscal discipline, ongoing structural reforms, effective management of commodity price volatility, and maintaining the hard-won credibility of monetary policy.

For businesses, consumers, and investors, the lower interest rate environment provides an opportunity to access more affordable financing and support economic expansion. The challenge now is to convert monetary accommodation into productive investment, job creation, and sustainable inclusive growth that can lift more Ghanaians out of poverty and secure the country’s middle-income status.

As Ghana approaches the conclusion of its IMF program in 2026, the true test of the reforms implemented over the past three years will be whether the country can maintain macroeconomic stability and continue on a path of sustainable growth without external support and oversight. The rate cut announced on November 26 is both a celebration of progress achieved and a down payment on the economic future that Ghana’s policymakers and citizens are working to build.

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By: Montel Kamau

Serrari Financial Analyst

27th November, 2025