Ghana’s economic management has taken a puzzling turn. On one hand, the Bank of Ghana (BoG) is stepping on the brakes, raising interest rates to slow down inflation and stabilize the cedi. On the other, the government is hitting the accelerator, lowering treasury bill rates to reduce its borrowing costs and potentially ramping up spending. This conflicting approach to economic policy raises a big question: Can inflation really be controlled when fiscal and monetary policies are pulling in opposite directions?
This contrast between monetary tightening and fiscal easing creates uncertainty in financial markets and could undermine inflation control efforts, according to IMANI’s Critical Analysis of Economic Issues, March 2025.
To tame inflation, the BoG has increased the policy rate by 100 basis points to 28%, up from 27%. The goal? Make borrowing more expensive, reduce excess liquidity in the economy, and slow down demand-driven inflation. While inflation has been gradually easing, falling from 23.8% in December 2024 to 23.1% in February 2025, food inflation remains stubbornly high, ticking up from 27.8% to 28.1% within the same period.
At the same time, the Ghanaian cedi continues to struggle, depreciating by 5.3% against the U.S. dollar and now trading at 15.53 GHS/USD. A weaker cedi makes imports more expensive, driving up inflation further. By raising interest rates, the BoG hopes to attract foreign investment into cedi-denominated assets, strengthening the currency. But will this strategy work if government borrowing fuels more spending?
While the BoG is tightening the economy, the government seems to be loosening it. Treasury bill rates, which determine how much the government pays for borrowing, have dropped significantly:
- 91-day T-bill: 26.93% → 15.74%
- 182-day T-bill: 27.69% → 16.93%
- 364-day T-bill: 28.90% → 18.85%
This move reduces the government’s interest payments, easing its debt burden. But there’s a catch. Cheaper borrowing could encourage more government spending, which could, in turn, push inflation higher, the very thing the BoG is trying to fight.
IMANI’s Critical Analysis of Economic Issues, March 2025 warns that these mixed signals create uncertainty in the financial markets. If the government continues borrowing at lower rates and increasing spending, inflationary pressures might not ease as quickly as expected. In fact, the BoG may be forced to hike interest rates again to counteract the inflationary effects of fiscal expansion.
Meanwhile, businesses are already feeling the heat. The average lending rate hit 30.12% in February 2025, making credit expensive for businesses, especially SMEs that rely on bank loans to grow. When borrowing costs are high, private sector investment slows, job creation suffers, and economic growth takes a hit.
The BoG’s strategy might help in the short term, but IMANI warns that without fiscal discipline, inflation could persist. More than just interest rate hikes, Ghana needs structural solutions, boosting exports, cutting import dependency, and managing public spending responsibly.
