Policy Rate Cut Could Fuel Inflation – UG Economist Warns

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 an early cut to the policy rate, warning that such a move could reignite inflationary pressures and destabilize the country’s fragile economic gains.

In an exclusive interview with Top Knowledge TV, Dr. Forson emphasized that Ghana’s macroeconomic environment remains too volatile for monetary easing, especially ahead of the BoG’s emergency Monetary Policy Committee (MPC) meeting scheduled for July 17, 2025.

“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 stated.

Background: Business Calls for Easing

The BoG’s policy rate currently stands at 29.5%, one of the highest in West Africa. While the elevated rate has contributed to bringing inflation down from over 40% in 2023 to 13.6% by mid-2025, businesses and financial institutions have ramped up calls for relief.

The Ghana National Chamber of Commerce and Industry (GNCCI) and other private sector players are pushing for a 100–150 basis point cut, arguing that the high cost of credit is hampering investment and slowing post-COVID business recovery.

UG Economist: ‘Hold Steady’

Dr. Forson, however, urged caution. He highlighted several ongoing risks to price stability, including global supply chain disruptions, rising food import costs, and the continued volatility of the cedi.

“It’s dangerous to focus only on the cost of credit without considering inflation expectations. If inflation rises again, the central bank may be forced to hike rates even higher — and that would be worse for business sentiment.”

He also pointed to fiscal uncertainty and the 2024 election cycle as additional variables that could feed into inflation if monetary policy is loosened prematurely.

BoG’s Delicate Balancing Act

The central bank finds itself at a crossroads — trying to support economic growth while also maintaining price and exchange rate stability. This challenge is further compounded by IMF programme requirements, which demand fiscal discipline and controlled inflation.

BoG Governor Dr. Ernest Addison has previously stated that any adjustment to the policy rate would be contingent on “clear and sustained disinflation trends.”

Observers believe the upcoming MPC meeting could signal the central bank’s direction ahead of Q4 2025.

Market and Political Reactions

Economists and market analysts are largely in agreement with Dr. Forson’s cautious stance. Many believe the BoG should wait until inflation dips into the single-digit range before taking any steps toward easing.

Meanwhile, opposition politicians argue that the high rate is strangling SMEs and discouraging credit access, while government officials appear to support a gradual easing, provided inflation remains within the projected target band.

Conclusion

As the Bank of Ghana prepares for its July 17 policy meeting, the debate over a potential rate cut underscores the delicate balancing act between stimulating growth and controlling inflation. While rate reductions may be tempting to support business recovery, economists like Dr. Ato Forson caution that moving too quickly could unravel Ghana’s recent economic gains.

???? Stay with Top Knowledge TV for expert commentary, live updates, and full coverage of the BoG’s decision on July 17, 2025.
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