Ghana’s policy rate is too high, says economist
Ghana’s benchmark interest rate is unnecessarily high and risks slowing the economy, according to economist Prof. Isaac Boadi. He believes the Bank of Ghana should slash the current 25% rate by at least 900 basis points to reflect improved macroeconomic indicators.
Prof. Boadi, who is Dean of the Faculty of Accounting and Finance at UPSA, also serves as Executive Director at the Institute of Economic and Research Policy. He argues that Ghana’s economic data no longer supports a tight monetary stance.
“Inflation has cooled, growth is picking up, and credit is expanding,” he said. “Maintaining a 25% rate under these conditions makes little economic sense.”
Indeed, headline inflation has fallen to 13.7%, with food inflation at 16.3% and non-food at 11.4%. Prices of locally produced goods have risen by 14% — significantly lower than last year’s highs. This downward trend in inflation, he noted, should justify a more accommodative policy.
Moreover, Ghana’s economy grew by 5.3% in the first half of 2025. When oil is excluded, the growth rate jumps to 6.8%. According to Boadi, this suggests underlying demand remains strong, and the risk of overheating is minimal.
At the same time, short-term market interest rates remain far below the central bank’s MPR. Treasury bills currently yield between 14.7% and 15.8%, while the Ghana Reference Rate sits at 24%. This, Boadi claims, shows that market dynamics do not align with the Bank’s tight policy.
“The wide gap between Treasury rates and the policy rate suggests overtightening,” he explained. “The central bank may be overcorrecting at a time when the economy needs support.”
Additionally, Ghana’s fiscal health has improved. The country posted a primary surplus of 1.1% and an overall deficit of just 0.7% on a commitment basis. Foreign reserves can cover four months of imports, and the current account is in surplus by $3.44 billion. Meanwhile, the exchange rate has held steady at around GHS 10.4 to the dollar.
Private sector lending has also surged. Year-on-year credit growth now stands at 31.3%, suggesting banks are willing to lend and businesses are willing to borrow—despite the high policy rate.
To quantify the ideal rate, Boadi used a simplified Taylor Rule model. He applied a 3% natural interest rate, an 8% inflation target, and a 6% potential growth rate. With those inputs, the recommended policy rate comes out at 19.2%.
MPC = 3 + 13.7 + 0.5(13.7 – 8) + 0.5(5.3 – 6) = 19.2%
“This formula gives a clearer picture,” he said. “A 19.2% rate would better reflect current conditions than the existing 25%.”
In his view, the current stance could dampen consumer demand and slow business expansion. Furthermore, it may distort credit pricing and discourage private investment.
Although the Bank of Ghana has defended its approach in the past, Boadi believes it’s time to reassess. With inflation down, growth steady, and reserves healthy, Ghana has room to ease.
The central bank’s next policy meeting will test whether officials agree. For now, Boadi insists: “The data speaks clearly — the policy rate is too high.”
