Policy rate cut could fuel inflation – UG Economist warns
A senior economist at the University of Ghana has warned that any premature cut to the policy rate could reignite inflationary pressures, threatening the country’s fragile economic recovery
Policy Rate Cut Could Fuel Inflation – UG Economist Warns
A senior economist at the University of Ghana, Dr. Joseph Ato Forson, has cautioned the Bank of Ghana (BoG) against making early cuts to the policy rate, warning that such a move could fuel inflation and destabilize Ghana’s fragile economic gains.
Speaking in an interview with Top Knowledge TV on the eve of the BoG’s emergency Monetary Policy Committee (MPC) meeting scheduled for July 17, 2025, Dr. Forson stressed that macroeconomic conditions remain too volatile to warrant any form of monetary easing.
“We are not out of the woods yet. Inflation remains sticky, the cedi is under pressure, and external shocks persist. Cutting the policy rate too soon could reverse the modest progress we’ve made,” he warned.
Background: Calls for Easing
The BoG’s current policy rate stands at 29.5%, one of the highest in the subregion. While the rate has helped stabilize inflation — which fell from over 40% in 2023 to 13.6% by mid-2025 — businesses and borrowing sectors are urging the central bank to begin reducing rates to lower the cost of credit.
Private sector groups, including the Ghana National Chamber of Commerce and Industry (GNCCI), have called for a 100-150 basis point cut, arguing that interest costs are choking investment and business recovery.
UG Economist: ‘Hold Steady’
But Dr. Forson disagrees. According to him, Ghana’s inflation remains vulnerable to external price shocks, food supply issues, and ongoing cedi volatility.
“It’s dangerous to focus only on the cost of credit without considering inflationary expectations. If inflation picks up again, the BoG will be forced to hike rates even higher later — which is worse for business confidence,” he explained.
He added that fiscal uncertainties and the approaching election season could further complicate inflation management if monetary policy is loosened too early.
BoG’s Delicate Balancing Act
The BoG faces a tough balancing act — managing inflation, ensuring exchange rate stability, and supporting economic growth amid global uncertainty and IMF programme conditions.
Sources close to the central bank suggest a cautious approach is likely, with Governor Dr. Ernest Addison previously stating that “rate adjustments must reflect clear and sustained disinflation trends.”
The central bank is expected to issue updated inflation forecasts, growth projections, and forward guidance following Wednesday’s MPC meeting.
Market and Political Reactions
Financial analysts have echoed Dr. Forson’s caution, with many advising that the BoG maintain its current stance until inflation shows stronger downward movement into single digits.
Meanwhile, political figures have begun weighing in. Opposition parties argue that high rates are suppressing business activity, while government officials have signaled support for a gradual easing — provided inflation stays within target.
Conclusion
As Ghana’s central bank prepares for its emergency MPC meeting, voices like Dr. Ato Forson’s highlight the complex, often conflicting pressures that shape monetary policy. While rate cuts may be attractive to borrowers and businesses, economists warn that premature easing could reignite inflation — and derail recovery.
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