Ghana’s Policy Rate Stays High at 28%; Experts Say the Timing of the Hike Is Misguided

On Friday, March 28, 2025, the Bank of Ghana’s Monetary Policy Committee raised the policy rate—the interest rate at which the central bank lends to commercial banks—by 100 basis points, bringing it to 28%.

Chaired by Dr. Johnson Asiama, Governor of the Bank of Ghana, the Committee cited persistent inflation, expansionary fiscal measures, excess liquidity, and geopolitical uncertainties as the primary drivers for the hike. According to the Committee, the move aims to reinforce the disinflation process. They added that once inflation shows a firm downward trend, the possibility of gradually loosening monetary policy would be considered.

However, the Institute of Public Policy and Accountability (IPPA) argues that the rate hike is poorly timed. Although inflation remains above 20%, it has declined marginally for two consecutive months. This trend, the Institute believes, warranted closer observation before taking such a step. The increase in the policy rate poses challenges for both businesses and consumers, especially in the current environment of rising operational and living costs. IPPA urges the central bank to re-evaluate its inflation-targeting strategy, noting that it may not be suitable for addressing the current inflation drivers, which are largely supply-side rather than demand-side.

IPPA strongly believes that raising the policy rate each time inflation is high puts undue pressure on businesses. Higher interest rates increase borrowing costs and the burden of existing debt, forcing companies to cut back on expansion plans, reduce profitability, and potentially halt job creation. This ripple effect also impacts the government’s ability to mobilize revenue.

Historically, Ghana’s policy rate has rarely dipped below 10%. Notably, the most favorable periods were from December 2006 to August 2007 and again from July to December 2011, when the rate was at 12.5%. This trend highlights the country’s chronic high-interest environment in Sub-Saharan Africa.

During these low-rate periods, Ghana’s fiscal discipline was strong. The Institute stresses that maintaining sound macroeconomic fundamentals—such as low inflation, stable exchange rates, and reduced government borrowing—depends on disciplined fiscal management. The Bank of Ghana is encouraged not to hesitate in holding the government accountable when it detects signs of fiscal irresponsibility. Lending to the government or printing money under political pressure should be avoided. The government, in turn, must curb excessive borrowing and ensure that loans are directed toward productive sectors.

Additionally, there is a pressing need to keep banks’ base lending rates low to encourage credit growth and support a production-driven economy. The government should avoid artificially reducing treasury bill yields to manage debt servicing costs, as this distorts the market and could weaken the cedi by pushing investors toward foreign currencies like the US dollar. Instead, policies should focus on expanding economic activity and enhancing revenue generation.

To address the persistently high cost of credit, IPPA also recommends the implementation of a credit scoring system, previously proposed by former Vice President Dr. Mahamudu Bawumia. This system is vital for reducing non-performing loans and improving lending practices. With credit reference bureaus already in place, assigning credit ratings to borrowers would be more feasible and effective with adequate support.