By Ghana News

Copyright ghanamma

Ghanaian businesses and households are poised for significant relief from crushing borrowing costs as the Bank of Ghana delivered its most aggressive monetary policy cut in recent memory, slashing the benchmark rate by 350 basis points to 21.5% amid sustained economic improvements.

The Monetary Policy Committee’s decision on Wednesday exceeded market expectations, with economists surveyed by Bloomberg predicting a more modest reduction to 22%. The move represents a dramatic shift from the central bank’s previous inflation-fighting stance and signals growing confidence in Ghana’s economic recovery trajectory.

The rate cut follows encouraging macroeconomic developments, particularly inflation’s decline to 11.5% in August from 12.1% in July, marking the lowest level in four years and bringing Ghana closer to single-digit inflation territory. This sustained disinflation has created the monetary space the central bank needed to prioritize economic growth over price stability concerns.

The decision reflects broader economic momentum that has surprised both domestic and international observers. Governor Johnson Asiama cited sustained disinflation, easing inflation expectations, and a stronger external sector as key factors driving the committee’s confidence in pursuing accommodative monetary policy without jeopardizing price stability gains.

Ghana’s currency performance has been particularly striking, with the cedi gaining approximately 21% against the U.S. dollar year-to-date, reversing previous depreciation pressures that had complicated monetary policy decisions. This currency stability has allowed policymakers to focus on domestic growth considerations rather than external balance concerns.

The economic growth story has been equally compelling, with second-quarter expansion reaching 6.3%, driven primarily by robust performance in services and agriculture sectors. This growth momentum, combined with narrowing fiscal deficits and declining public debt ratios, has created a supportive environment for monetary easing.

For Ghana’s banking sector, the policy shift promises to fundamentally alter lending dynamics that have constrained credit access for years. Commercial banks, which have maintained lending rates averaging around 24.2% in August, are expected to begin transmitting lower costs to customers as early as October, following typical adjustment lags in the system.

The Ghana Reference Rate, the benchmark used by banks for loan pricing, has already demonstrated responsiveness to policy changes, declining from 23.69% in July to 19.67% in August as Treasury bill yields and interbank rates fell. This latest 350 basis point cut follows a 300 basis point reduction at the previous MPC meeting in July, indicating the central bank’s commitment to sustained easing.

Industry analysts anticipate commercial lending rates could fall into the lower-20 percent range, potentially offering substantial relief to cash-strapped businesses that have struggled with prohibitive borrowing costs. Small and medium enterprises, which form the backbone of Ghana’s economy, stand to benefit most from improved credit accessibility and reduced financing burdens.

The monetary easing cycle marks a remarkable turnaround from earlier in the year when interest rates reached record highs as policymakers battled double-digit inflation. The successful disinflation process has vindicated the central bank’s previously hawkish stance while creating room for growth-supportive policies.

However, bankers remain cautiously optimistic, noting that credit risk assessments will continue influencing lending decisions despite lower policy rates. The transmission of monetary easing to real economic activity depends not only on lower rates but also on banks’ willingness to expand credit and borrowers’ capacity to service debt obligations.

The current policy rate of 21.5% represents the lowest level since 2019, signaling the central bank’s confidence that inflationary pressures will continue moderating. This aggressive easing stance positions Ghana among the more accommodative monetary policy regimes in sub-Saharan Africa.

The broader implications extend beyond immediate borrowing cost relief. Lower interest rates could stimulate investment in productive sectors, support consumer spending, and potentially attract foreign investment seeking higher yields than developed markets offer. However, the success of this strategy depends on maintaining the economic stability gains that enabled the policy shift.

Analysts expect further monetary easing by year-end if the current economic trajectory continues, with officials optimistic about achieving the year-end inflation target of 11.9% ahead of schedule. This suggests the easing cycle may not be complete, potentially offering additional relief to borrowers in coming months.

For mortgage seekers, vehicle buyers, and business investors, the policy shift represents the most significant opportunity for affordable credit access in years. The combination of lower base rates, improved economic fundamentals, and competitive banking sector dynamics could create a more favorable lending environment than Ghana has experienced since before the recent economic challenges.

The success of this monetary easing approach will ultimately be measured by its impact on real economic activity, job creation, and business investment levels. As banks adjust their lending frameworks and borrowers respond to improved credit conditions, Ghana’s economic recovery story may be entering a new, more optimistic chapter.