The International Monetary Fund (IMF) has advised the Bank of Ghana (BoG) to maintain a neutral and data-driven monetary policy as inflation, foreign exchange (forex) pressures, rising energy prices, and fiscal expansion continue to pose risks to Ghana’s economic stability.
According to the IMF’s latest Article IV Consultation and Policy Coordination Instrument (PCI) review, the BoG is approaching the end of its monetary easing cycle after a series of interest rate cuts aimed at supporting economic recovery while keeping inflation under control.
BoG Interest Rate Cuts Near Completion
The IMF noted that the Monetary Policy Committee (MPC) reduced the policy rate by 400 basis points to 14% in March 2026, bringing total rate reductions to 1,400 basis points since July 2025. The committee maintained the rate during its May 2026 meeting, signaling a cautious approach.
The Fund believes the current policy stance is appropriate, with Ghana’s inflation rate projected to return to the Bank of Ghana’s medium-term target of 8% ±2% by the end of 2026.
However, the IMF warned that additional interest rate cuts could weaken monetary discipline if inflation expectations rise.
“Maintaining a prudent, data-dependent monetary stance is essential for the Bank of Ghana,” the IMF stated, adding that further easing could shift policy from a neutral to an accommodative stance without sufficient economic justification.
Energy Prices, Exchange Rate and Fiscal Risks Remain
The IMF highlighted several factors that could slow Ghana’s progress in reducing inflation, including:
- Rising global energy prices and fertilizer costs driven by geopolitical tensions.
- Exchange rate volatility and continued forex pass-through to domestic prices.
- Fiscal expansion under the PCI programme.
- External economic shocks affecting Ghana’s macroeconomic outlook.
Despite these risks, Ghana has made significant progress in reducing inflation and restoring macroeconomic stability after recent economic challenges.
Liquidity Management Reforms Strengthen Monetary Policy
The IMF praised recent reforms by the Bank of Ghana aimed at improving liquidity management and strengthening monetary policy transmission across the banking sector.
Key reforms include:
- Replacing 56-day BoG bills with 14-day bills in December 2025 to improve short-term liquidity management.
- Introducing a uniform Cash Reserve Ratio (CRR) of 20% in June 2026, replacing the previous tiered reserve requirement system.
While the shorter-term bills improved liquidity operations, the IMF noted they also reduced the central bank’s ability to absorb excess liquidity, resulting in market rates falling by approximately 350 basis points relative to the policy rate.
The new CRR framework has helped improve liquidity absorption and enhance monetary control.
IMF Highlights Foreign Exchange Market Challenges
The IMF also identified foreign exchange (FX) market reforms as critical to maintaining Ghana’s economic resilience.
Although Ghana’s gross international reserves exceeded programme targets by reaching the equivalent of four months of import cover by the end of 2025, the Fund urged greater transparency in BoG’s foreign exchange interventions.
During the 12 months ending May 2026, the Bank of Ghana accumulated approximately US$3.9 billion in reserves while selling US$12.9 billion in foreign exchange to support market stability.
However, the IMF expressed concerns that some FX auctions deviated from established guidelines, calling for greater consistency and improved market transparency.
Reserve Accumulation Strategy Faces Trade-Offs
The Fund also reviewed Ghana’s Ghana Accelerated National Reserve Accumulation Policy (GANRAP), which aims to increase reserves to 15 months of import cover by 2028.
While acknowledging the importance of stronger reserve buffers, the IMF warned that accumulating large foreign reserves comes with economic trade-offs, including:
- Lower returns from investing in foreign assets compared to domestic investments.
- Higher sterilisation costs associated with managing excess liquidity.
- Potential opportunity costs for national development spending.
IMF Recommends Continued Monetary and Forex Reforms
To safeguard Ghana’s economic recovery, the IMF recommended that the Bank of Ghana:
- Maintain a prudent, data-dependent monetary policy.
- Improve liquidity absorption mechanisms.
- Strengthen communication of monetary policy decisions.
- Enhance transmission of policy rates to lending and deposit markets.
- Deepen Ghana’s foreign exchange market.
- Eliminate remaining multiple currency practices to improve price discovery and market efficiency.
Outlook for Ghana’s Economy
While Ghanaian authorities argue that recent interest rate cuts were justified due to rapid disinflation and improved external conditions, the IMF stressed that future monetary policy decisions should remain guided by economic data.
The Fund concluded that the Bank of Ghana is at a critical policy transition point, balancing the benefits of lower interest rates with the need to preserve inflation stability, exchange rate resilience, and long-term economic growth in Ghana.
Source: newsthemegh.com