Dr. John Kwakye, Director of Research at the Institute of Economic Affairs (IEA), says the Bank of Ghana (BoG) is anticipated to raise its policy rate by 100 basis points to 28% when the Monetary Policy Committee (MPC) concludes its 123rd meeting today.
This MPC meeting is particularly significant as it marks the first under the leadership of newly appointed Governor, Dr. Johnson Pandit Asiama. During his inauguration on February 25, 2025, Dr. Asiama committed to reshaping the central bank’s approach to monetary policy.
“We will adopt a more proactive and precise approach to managing inflation, leveraging advanced data analytics and artificial intelligence,” he asserted. Dr. Asiama also emphasized the need for closer coordination with government agencies to stabilize prices, particularly in the agricultural sector.
However, Dr. Kwakye, a former MPC member, believes the anticipated rate hike signals a strong stance against persistent inflationary pressures, as concerns grow over currency stability and declining Treasury bill yields.
“My assessment of the various competing factors suggests that the balance of risk currently leans more towards inflation than economic growth,” Dr. Kwakye explained. “I therefore expect the MPC to raise the policy rate by 100 basis points, from 27% to 28%.”
The expectation for a rate hike comes in the wake of a steep drop in Treasury bill yields last week. The 91-day, 182-day, and 364-day T-bill rates declined by 186, 204, and 101 basis points, respectively, settling at 15.86%, 16.93%, and 18.97%. These figures stand in contrast to the first week of 2025, when the same bills recorded rates above 28%.
This decline in yields has heightened investor concerns about negative real returns, especially given Ghana’s elevated inflation rate of 23.1% as of February 2025, well above the BoG’s target range of 6% to 10%. Government efforts to curb inflation fell short last year, with December 2024’s rate at 23.8%, driven mainly by rising food prices.
Adding to the economic strain is the cedi’s depreciation, which fell by 28% in 2023, 19% in 2024, and an additional 5.4% from January to mid-March 2025. The weakening currency, combined with lower T-bill rates, has raised fears of capital flight, as investors seek more stable foreign assets.
“The exchange rate’s vulnerability has been worsened by the sharp drop in T-bill rates, potentially prompting investors to seek refuge in foreign currencies,” Dr. Kwakye noted.
Despite an economic rebound in 2024, with GDP growth reaching 5.7% from 3.1% in 2023, the outlook remains uncertain. The fiscal deficit stood at -5.2% of GDP, slightly exceeding the suspended Fiscal Responsibility Act’s limit of -5%, while public debt hit GH¢726.7 billion (US$49.4 billion), or 61.8% of GDP. The projected GDP growth for 2025 is a modest 4%.
Dr. Kwakye emphasized the importance of the MPC’s decision in anchoring inflation expectations and curbing rising costs in food, energy, and transportation.
“This decision should signal the Committee’s determination to address inflation and stabilize the economy,” he said.
The upcoming decision has reignited discussions on the need for better coordination between monetary and fiscal policy. While the BoG has taken a leading role in stabilizing the economy, persistent fiscal deficits and high government spending have complicated efforts to control inflation.
