Ghana’s banking sector is closing 2025 with diminishing cash reserves and sharply declining liquidity as monetary authorities maintain pressure to control inflation. New data reveals banks are operating with significantly less free cash than a year ago, raising questions about spending momentum and economic vitality heading into year end.
Bank reserves, a major component of Reserve Money, have remained in negative territory for most of 2025. After hitting negative 11 percent in June, reserves briefly recovered in July before falling again to negative 3 percent in August, negative 13.4 percent in September, and negative 6.5 percent in October. The persistent downward trend indicates banks are managing substantially leaner cash balances compared to previous periods.
Total liquidity in the economy, measured by broad money supply (M2+), has weakened consecutively throughout the year. M2+ growth dropped from 31.7 percent in March to 18.1 percent in May, then to 15.6 percent in June, 16.6 percent in August, and finally just 8.2 percent in October. This represents one of the steepest liquidity slowdowns in recent memory, reflecting tightening cash flows throughout the financial system.
Currency outside banks, which remained extremely elevated through 2024, has fallen substantially during 2025. October saw a slight uptick, rising from 13.9 percent to 14.4 percent, but levels remain well below last year’s figures. The pattern suggests households and businesses continue spending cautiously with only minimal return to cash based transactions.
The Bank of Ghana (BoG) appears committed to maintaining tight liquidity conditions as part of its strategy to suppress inflation. Restrictive monetary policy typically cools price pressures by reducing demand, limiting excess cash, and moderating lending growth. Ghana’s headline inflation fell to 8 percent in October 2025 from 9.4 percent in September, marking the tenth consecutive monthly decline and the lowest level since June 2021.
Government Statistician Alhassan Iddrisu described the October inflation figure as confirmation that price pressures are moderating and stabilizing. Month on month inflation turned negative at minus 0.4 percent, meaning the overall price level of goods and services actually declined between September and October.
The disinflation success comes amid broader monetary policy actions. The BoG has implemented stepped up liquidity sterilization efforts alongside tight monetary stance, contributing to the gradual inflation decline. International reserves climbed to 10.7 billion US dollars in August 2025, providing critical financial stability.
However, the comprehensive liquidity squeeze raises concerns about real economic momentum. With bank reserves shrinking, liquidity growth slowing, and money supply indicators decelerating across the board, signs suggest the economy may be losing some steam as 2025 winds down. Banking sector liquidity surged to 343 billion Ghana cedis in August, driven primarily by increased foreign currency deposits that offset declines in domestic money holdings.
The central bank faces a delicate balancing act. Tight liquidity helps anchor inflation expectations and supports exchange rate stability, but excessive tightening risks choking off credit availability and dampening business activity. Private sector credit growth reached 26.3 percent in December 2024, up from 10.7 percent the previous year, but sustained liquidity restrictions could constrain lending capacity going forward.
Regional inflation disparities reveal uneven economic conditions. The North East Region recorded the highest inflation at 17.3 percent in October, while Bono East Region posted the lowest at 1.1 percent, reflecting differences in food production, market access, and transportation costs.
For now, monetary authorities appear comfortable maintaining restrictive settings. The strategy aims to cement gains against inflation while managing the risk of economic slowdown. Whether this tight rope walk can continue without triggering sharper growth deceleration remains a key question as Ghana enters 2026.
