The Bank of Ghana’s Monetary Policy Committee (MPC) has reduced the Monetary Policy Rate (MPR) by 250 basis points to 15.5 percent, citing sustained disinflation, strengthened external buffers, and improving macroeconomic conditions.
The decision was taken by a majority of members at the 128th MPC meetings held from January 26 to 28, 2026, marking a further step in the central bank’s gradual easing cycle after a prolonged period of tight monetary policy.
Inflation falls sharply, expectations anchored
Headline inflation declined for the twelfth consecutive month, falling from 23.8 percent in January 2025 to 5.4 percent in December 2025, supported by tight monetary conditions, fiscal consolidation, improved food supply dynamics, and a stable exchange rate. Core inflation and inflation expectations among households, businesses, financial market participants, and economic experts also eased, reinforcing confidence that price pressures remain well contained.
Near-term forecasts indicate that inflation will remain within or below the lower bound of the target band, before gradually returning to the medium-term target range later in 2026.
External sector and reserves strengthen markedly
The external sector recorded a strong performance in 2025, underpinned by record gold export receipts and favourable global conditions. The current account surplus widened to US$9.1 billion, up from US$1.5 billion in 2024, while the balance of payments posted a surplus of US$3.98 billion.
As a result, gross international reserves rose to US$13.8 billion, equivalent to 5.7 months of import cover, compared with 4.1 months at end-2024. The stronger reserve position supported significant appreciation of the cedi and improved foreign exchange resilience.
Growth outlook improves, credit remains weak
Real GDP growth in 2025 was estimated at 5.5 to 6 percent, driven mainly by the services and agriculture sectors. High-frequency indicators such as the Composite Index of Economic Activity (CIEA), Purchasing Managers’ Index (PMI), and confidence surveys all point to continued economic expansion.
Despite improvements in liquidity and declining market interest rates, private sector credit growth remains sluggish, constrained by still-elevated lending rates. MPC members noted that the ex-ante real interest rate remains high by international standards, indicating continued monetary tightness even after recent easing.
Banking sector stabilises
The banking sector continued to recover in 2025, with improvements in solvency, profitability, and efficiency. Asset quality showed gradual improvement, with the non-performing loan (NPL) ratio declining to 18.9 percent from 21.8 percent, although it remains elevated. Members stressed the need for continued strengthening of banks’ risk management frameworks to support sustainable credit expansion.
Risks broadly balanced, easing deemed appropriate
The MPC assessed risks to the inflation outlook as broadly balanced, but tilted slightly to the downside. Potential upside risks include utility tariff adjustments, commodity price volatility, geopolitical tensions, and global trade disruptions.
These are expected to be offset by downside factors such as a strong currency, anticipated reductions in transport fares, lower VAT and fuel prices, and stable food supply conditions supported by agricultural interventions.
Against this backdrop, members agreed that maintaining the previous degree of monetary tightness could unnecessarily constrain economic activity and delay credit recovery.
Decision and outlook
The majority of MPC members therefore voted for a 250 basis points cut to align real interest rates with current inflation dynamics, support confidence, stimulate credit growth, and reinforce the economic recovery, while keeping inflation within the medium-term target range. A minority of members argued for a deeper 300 basis points cut, citing a wide real interest rate gap and subdued inflation risks.
The Committee reaffirmed its commitment to a data-dependent approach and signalled readiness to respond swiftly should inflationary pressures re-emerge.
The Bank of Ghana’s next Monetary Policy Decision is scheduled to be released following the MPC meetings in March 2026.
Source: www.kumasimail.com
