In brief
- From hawkishness to dovishness, as expected. The Bank of Ghana’s MPC resumed policy easing in July 2025 with a 300bps rate cut to 25.0%, in line with our expectations, after hiking in March and pausing in May to re-anchor inflation expectations. The sharp disinflation in 1H2025 pushed the real policy rate to a restrictive 14.3%, creating vast room for this decisive move while maintaining a tight enough stance to guard against upside risks, including a potential utility tariff hike in 4Q2025.
- A first cut with dovish signalling. With inflation expectations now seen as broadly anchored, the MPC’s revised forecast points to single-digit inflation by end-2025, earlier than previously projected, and validating our outlook despite lingering uncertainty from a potential 4Q2025 utility tariff hike. While the Committee opted for a 300bps cut, we believe minority dissent likely leaned toward a deeper cut. The MPC’s forward guidance was notably dovish, hinting at further easing if disinflation persists. We expect another rate cut in September 2025, as strong harvests and Cedi gains support continued disinflation, potentially pushing the real policy rate well above the already tight 11.3%.
- Real Effective Exchange Rate (REER) appreciation suggests a likely corrective depreciation ahead, albeit modest. The sharp Cedi rally in 1H2025 created a dual FX market, with the interbank rate at 10.5/USD and retail near 12.0/USD, aligning with our estimated fair value of 12.2/USD. Concurrently, the REER index dropped sharply (-31.3%) to 92.7pts, signalling possible over-valuation and prompting BOG to scale back FX interventions per IMF advice. With FX forward sales down 53.6% m/m and tighter supply, the Cedi has slipped 1.7% post-IMF review. We expect a continued but gradual BOG pullback, guiding the interbank rate toward 10.95/USD ±0.5 by year-end. without triggering disorderly market moves.
- Banking sector recovery nears pre-DDEP solvency although asset quality may require regulatory intervention. Ghana’s banking sector capital position improved sharply in 1H2025, with the CAR (without regulatory reliefs) rising to 18.2%, supported by NIB’s recapitalization and private banks’ progress. However, asset quality remains weak, with gross NPL ratio at 23.1% (8.5% excluding loss loans). We expect the BOG to begin approving write-offs in the quarters ahead to clean-up bank balance sheets.
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