The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has delivered a higher than expected 350 basis points cut to the policy rate to bring it to 21.5% as inflation eased further in August. The central bank said its decision was anchored on a sustained disinflation process, stronger reserve buffers, and improving confidence across the economy.

Inflation slowed for the eighth straight month to 11.5 percent in August, the lowest level in four years, supported by tighter monetary policy, improved food supplies, fiscal consolidation and an appreciating currency. Core inflation measures also dropped, while surveys of consumers, businesses and banks showed declining expectations, reinforcing optimism that headline inflation will fall back within the Bank’s 8 ± 2 percent target band by year-end.

The disinflationary trend has coincided with stronger growth. Fresh GDP data showed the economy expanded by 6.3 percent in the second quarter, with non-oil growth rising by 7.8 percent on the back of double-digit expansion in services and robust growth in agriculture.

With treasury bill rates currently returning 10-13%, it is likely that the central bank believes the cost of its open market operations, that is the 56-day bills it usually issues at an interest rate equivalent to the policy rate, is too high. This has implications for the bank’s own bottomline. The rate cut closes a bit of the gap between the central government’s borrowing costs and the central bank’s cost of mopping up excess liquidity.

The MPC warned of risks ahead. A possible upward review of utility tariffs could put some pressure on prices, and global headwinds remain a concern. But for now, policymakers see enough room to loosen policy and support growth while keeping inflation on track to meet the target. Alongside the rate cut, the Bank adjusted the Net Open Position rules for banks, tightening single-currency limits to between 0 and –10 percent effective October 1.

The next MPC meeting is scheduled for November 17–19, when the Committee will reassess the outlook. For now, the sharp rate cut signals growing confidence that Ghana’s economy has turned a corner after years of crisis, and that the balance between stability and growth is tilting in the right direction.