The Bank of Ghana (BoG) has raised the Monetary Policy Rate (MPR) by 100 basis points to 28%, defying market expectations that the rate would either remain unchanged at 27% or see a reduction. The Monetary Policy Committee (MPC) took this decision by a majority vote, a notable shift from the usual unanimous stance.

Ahead of the 123rd MPC meeting, a Reuters poll indicated that 9 out of 10 analysts expected the BoG to hold rates steady, citing concerns over inflation, which, while declining, remains well above the central bank’s target of 8% ± 2 percentage points. Ghana’s inflation rate slowed for the second consecutive month to 23.1% in February, down from 23.5% in January, reinforcing predictions that the BoG would maintain its cautious stance.

However, BoG Governor Dr. Johnson Asiama explained that while headline inflation has eased slightly, both food and non-food inflation remain significantly above expectations, with core inflation still elevated. He stressed that supply-side pressures continue to drive food inflation, making it necessary to tighten policy to prevent second-round effects from prolonging inflationary pressures.

“While food inflation was driven largely by supply-side factors, preventing the second-round effect from such increases will be essential,” Dr. Asiama stated.

“The persistent inflation dynamics over the past year, partly driven by both fiscal and monetary policy mistakes, will require a policy reset to re-anchor the disinflation process.”, he added.

Dr. Asiama further emphasized that restoring price stability will demand a tight monetary policy stance, strong liquidity management, and strict adherence to the 2025 budget’s fiscal consolidation plan.

“To restore price stability going forward, we will require a tight monetary policy stance, strong liquidity management, and commitment to the 2025 budget, which seeks to reset the fiscal consolidation process,” he added.

The decision to increase the rate was reached through a majority vote, marking a departure from the unanimous decisions the committee has relied on in previous years.

“Unlike the unanimous decisions we have used in the last many years since the framework began, this was by a majority decision. And so, by a majority decision, the committee decided to raise the monetary policy rate by 100 basis points to 28%, and this is meant to re-anchor the disinflation process as inflation becomes firmly anchored.”, Dr. Asiama noted.

Despite the tightening stance, the central bank signaled a potential shift in the coming months.

“As inflation becomes firmly anchored, as we see the next readings of inflation and we see declines, the committee will reassess the scope for a gradual easing in the policy stance,” Dr. Asiama stated.

The latest rate hike is expected to have significant economic implications, including higher borrowing costs for businesses and individuals, stronger currency stability due to tighter liquidity, a potential slowdown in credit expansion, and increased fiscal discipline pressure under the 2025 budget framework.