The Monetary Policy Committee (MPC) of the Bank of Ghana has increased the policy rate by 100 basis points, moving it from 27% to 28%. The decision was announced on Friday, March 28, 2025.
According to the committee, which is chaired by the governor of the Bank of Ghana, Dr. Johnson Asiama, the latest adjustment in the policy rate was driven by persistent inflationary pressures, government fiscal expansion, excess liquidity in the market, and external geopolitical risks.
The committee explained that the move aims to help sustain the disinflation process, adding that as inflation expectations become better anchored, there may be room to gradually ease the policy rate in the future.
Concerns over the timing of the hike
However, the Institute of Public Policy and Accountability (IPPA) has raised concerns about the timing of the rate hike. While acknowledging the challenges highlighted by the Bank of Ghana, the institute believes that increasing the policy rate at this time may worsen the situation for businesses and consumers.
Inflation in the country remains above 20%, but recent data shows two consecutive marginal declines. In the view of the IPPA, the MPC could have waited a while longer to observe the impact of these declines before adjusting the policy rate upwards.
An increase in the policy rate generally leads to higher lending rates for businesses and households, raising the cost of borrowing and operational expenses.
Call for Review of Inflation Targeting Framework
The IPPA is therefore calling on the central bank to reconsider its inflation targeting framework, arguing that relying solely on this approach may not be the most effective tool for managing inflation — especially when the current inflation drivers are largely supply-side rather than demand-driven.
The Institute pointed out that increasing the policy rate when inflation remains stubbornly high often impacts the survival of businesses. Higher borrowing costs discourage companies from expanding their operations, which affects job creation and government revenue generation.
Historical Perspective
Historically, Ghana’s policy rate has rarely fallen below 10%. The country recorded its lowest policy rates between December 2006 and August 2007 and again from July 2011 to December 2011, when the rate stood at 12.5%.
The IPPA believes that these low-rate periods were supported by strong fiscal discipline from the government. The Institute emphasized the need for consistent fiscal prudence to maintain stable macroeconomic conditions such as lower interest rates, reduced inflation, controlled borrowing, and a stable exchange rate.
Source: Business and Financial Times
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