The Monetary Policy Rate (MPR) is the benchmark interest rate set by the Monetary Policy Committee (MPC) of the Bank of Ghana. It serves as a powerful tool to manage inflation, influence lending behavior, and guide the overall direction of the economy. The MPR directly affects the cost of borrowing in the economy and signals the stance of monetary policy to investors, businesses, and consumers. It is especially critical in economies like Ghana’s, where inflation and exchange rate dynamics play a central role in economic stability.
To estimate an appropriate MPC rate, several key macroeconomic indicators must be considered. Inflation trends are paramount, Ghana’s current consumer price inflation stands at 13.7%, with food inflation at 16.3%, non-food inflation at 11.4%, and locally produced goods inflation at 14%. These figures show moderation from previous highs, suggesting that inflationary pressures are easing. Economic growth is another crucial factor. Ghana recorded a real GDP growth of 5.3% and a non-oil GDP growth of 6.8% in the first half of 2025, reflecting a relatively strong performance. Interest rates on the 91-day Treasury bill, 182-day, and 364-day bills stand at 14.7%, 15.3%, and 15.8% respectively, while the Ghana Reference Rate is at 24%.
This wide gap between short-term market rates and the MPR indicates potential overtightening. The fiscal position has also improved, with a primary surplus of 1.1% and an overall deficit of just 0.7% on a commitment basis. Furthermore, the exchange rate has shown some stability (USD/GHS at 10.4), external sector performance remains solid with a current account surplus of $3.44 billion and reserves covering four months of imports, and private sector credit growth is robust at 31.3%.
Using a simplified Taylor Rule, the ideal MPR can be estimated. Assuming a natural real interest rate of 3%, inflation target of 8%, and potential GDP growth of 6%, the policy rate formula becomes:
MPC = 3 + 13.7 + 0.5(13.7 – 8) + 0.5(5.3 – 6) = 19.2%
This computation suggests that the current policy rate of 25% is substantially above the optimal rate. Given the cooling inflation, relatively strong growth, improved external balances, and lower short-term interest rates, maintaining such a high MPC rate may unnecessarily suppress economic activity and credit expansion.
Ghana’s monetary policy stance appears excessively tight under current macroeconomic conditions. A revised MPC rate of around 19.2% would better reflect economic fundamentals and support a more balanced recovery.
- Author: Prof. Isaac Boadi
- Dean, Faculty of Accounting and Finance, UPSA
- Executive Director, Institute of Economic and Research Policy, IERPP
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