Proceed cautiously with further policy rate reductions – IMF urges BoG

The International Monetary Fund (IMF) has advised the Bank of Ghana (BoG) to exercise caution when considering additional reductions in the policy rate. The IMF's caution arises from several factors, including the potential second round effects stemming from the ongoing war in the Middle East, which could impact energy and fertiliser prices. Furthermore, the IMF highlights the fiscal relaxation under the Policy Coordination Instrument and the high exchange rate pass-through as sources of persistent risks.

The IMF also warns that easing monetary policy could shift the stance from neutral to accommodative, which may not be justified at this stage. The IMF points out that the BoG is nearing the conclusion of a monetary easing cycle that aimed to bring the policy stance to a neutral level. In March 2026, the BoG's Monetary Policy Committee (MPC) reduced the policy rate by 400 basis points to 14%, resulting in cumulative cuts of 1,400 basis points since July 2025. The MPC held the policy rate steady in May 2026.

According to the IMF, with inflation anticipated to align with the BoG's 8±2% target by the end of 2026 and the estimated real neutral rate around 5.0%, the ex-ante real policy rate aligns well with a neutral stance. In December 2025, the BoG made a significant operational shift by replacing its 56-day bills with 14-day bills to enhance liquidity management.

Consequently, the BoG's bill supply became constrained, leading to a reduction in liquidity absorption and a boost in the usage of the standing deposit facility. This adjustment pushed BoG bill and interbank rates closer to the lower end of the interest rate corridor, effectively loosening monetary conditions by around 350 basis points compared to the policy rate.

In line with IMF recommendations, the BoG unified the cash reserve ratio (CRR) at 20% in June 2026, eliminating the previous tiered structure (15% and 25% rates tied to loan-to-deposit ratio thresholds). Additionally, the BoG mandated that CRR be fulfilled in cedis, reversing the May 2025 decision that permitted fulfillment in the currency of deposits. These modifications have modestly increased unremunerated liquidity absorption through the CRR.