Although businesses are singing the praises of the Monetary Policy Committee (MPC) of the Bank of Ghana (BOG) for the steep policy rate cut, economist Dr. Paul Appiah Konadu has described the decision as justifiable but highly risky.
The MPC, after its last meeting, announced a 350 basis point reduction in the policy rate, cutting the rate drastically from 25% to 21.5%.
This decision of the MPC came amid cooling inflation, strong economic growth, and a marginal shake-up in the value of the cedi in recent weeks.
Following the decision, the economist agrees that the move could unlock private sector growth; however, it can also fuel fresh economic instability if not carefully managed.
Speaking after the Monetary Policy Committee’s decision, Dr. Appiah Konadu explained that the cut comes on the back of encouraging signals in the economy. Headline inflation has eased significantly from a little over 28 percent in December 2024 to 11.5 percent in August 2025, with the central bank now inching closer to its single-digit target.
Ghana has also achieved the IMF programme target of 11.9 percent and bolstered its foreign reserves to $10 billion, giving some breathing space for the cedi.
To him, with inflation cooling and relative stability in the cedi, it is understandable why the Bank of Ghana would want to reduce the policy rate to open up credit for the private sector.
The economy, he says, is now at a point where we must unlock funding to expand credit-financed investments and create jobs.
“Inflation has eased from a little over 28 percent in December 2024 to 11.5 percent now. We also saw some relative stability in the cedi, so as the government begins the implementation of the big push programme, the thinking is to also open up credit to the private sector to enhance credit-funded investments to create employment,” he told The High Street Journal.
However, the economist was not much enthused about the speed and size of the cut. In his books, a whopping 350 basis points in one swoop is a gamble.
He explained that while the reduction makes loans cheaper and boosts domestic investment, it risks spiking demand for imports in an economy heavily dependent on foreign goods, from machinery to consumer products.
“I think there are risk factors. There are risk factors, especially regarding the size and speed. A 350 base point cut is quite significant and very rapid. And if care is not taken, that may fuel the demand for imports. And if that happens, it may put further pressure on the cedi,” he observed.
Dr. Konadu further stressed that additional factors, such as the proposed adjustments in utility tariffs, could worsen inflationary pressures. If these risks are not contained, the very rate cut intended to stimulate growth could backfire, sending inflation spiraling out of control.
“Then also the proposed adjustment in tariffs, if that also comes on board, that will also reinforce the inflationary pressures in the economy that could be triggered by the policy rate cut. And if we are not able to tame it, that can lead to inflation spiraling out of control,” he cautioned.
Other analysts say his warning captures a delicate truth that the policy rate cut is a shot of energy into a recovering economy, but like all strong medicine, it comes with side effects. If private sector investment takes off while import demand is managed, the gamble could pay off in jobs and growth.
However, if the opposite happens, Ghana could face renewed exchange rate volatility and inflation, undoing hard-won economic stability.
