The Bank of Ghana (BoG) has cut its Monetary Policy Rate (MPR) by 300 basis points to 25%, its most aggressive reduction since mid-2024, aiming to accelerate the transmission of falling inflation to borrowing costs.
The decision, announced after the 125th Monetary Policy Committee (MPC) meeting, targets further declines in the Average Lending Rate (ALR) and Ghana Reference Rate (GRR), both already down significantly in 2025.
According to official records, sustained disinflation and anchored expectations drove the move. Headline inflation fell to 13.7% in June a 42-month low enabling monetary easing to support credit expansion and private sector recovery. The ALR, reflecting average borrower costs, dropped 375 basis points to 27% between January and June 2025. The GRR, the mandatory lending floor, fell more sharply by 525 basis points to 23.69%.
Despite these declines, the spread between ALR and GRR widened from 181 to 331 basis points over the period, signaling limited pass-through of policy easing to end borrowers. Commercial banks remain cautious, likely due to credit risk concerns and subdued demand from high-risk segments like small- and medium-sized enterprises (SMEs).
Governor Dr. Johnson Pandit Asiama stated the cut reflects “improved confidence in the inflation outlook and a more stable macroeconomic environment.” The MPC pledged further reductions if disinflation persists, projecting inflation will return to the 8±2% target band by late 2025.
However, the central bank emphasized that broader economic impact hinges on improved rate transmission. While large firms may benefit, SMEs still face high borrowing costs exacerbated by collateral demands and restrictive terms. Without decisive bank responsiveness, monetary easing’s effectiveness on overall activity may remain constrained.
