MPC weighs policy path as FX stability, expectations steady                             

  …rate cut of 100–150 bps in view

  By Joshua Worlasi AMLANU

The Monetary Policy Committee of the Bank of Ghana opened its first meeting of 2026 with inflation sharply lower, reserves at multi-year highs and the cedi broadly stable – setting the stage for a debate on how fast policymakers can continue easing without undermining credibility.

At the 128th MPC meeting’s opening, Bank of Ghana Governor Johnson Pandit Asiama said recent macroeconomic gains have created policy space but warned that the challenge now is to lock in stability rather than declare victory. Inflation fell to 5.4 percent at the end of 2025, external buffers strengthened and growth remained firm through the third quarter; outcomes he said reflected restored policy credibility.

“This meeting is not about touting the successes we have achieved,” Dr. Asiama told committee members. “It is about analysing the data to assess whether stability will be guaranteed going forward. The work has only just begun and the decisions we take must remain robust under scrutiny tomorrow.”

The improved backdrop follows an aggressive easing cycle in 2025. At its 127th meeting in November, the MPC cut its benchmark rate by 350 basis points to 18 percent – extending cumulative reductions to 1,000 basis points for the year. The decision was driven by a rapid fall in inflation, which dropped to 8 percent in October while nominal Treasury yields stayed in double digits – pushing real interest rates sharply higher.

Submissions from MPC members at that November 2025 meeting showed broad agreement that policy had become overly restrictive relative to the inflation outlook. Members cited falling food and non-food inflation, a stronger currency and rising reserves as justification for large cuts, even as they differed on the pace.

Votes at the time ranged from a 300-basis-point reduction to as much as 450 basis points. Several members explicitly argued that real interest rates of about 13 percent to 14 percent were constraining credit growth and investment, with banks continuing to favour Bank of Ghana bills over private lending.

Those arguments now frame expectations for the January meeting. With inflation projected to remain within the 8±2 percent medium-term target band through 2026 and headline numbers already below target, analysts and market participants expect the MPC to deliver a more measured cut of between 100 and 150 basis points, signalling a shift from rapid easing to calibration.

Dr. Asiama highlighted four considerations guiding the committee’s deliberations: the sequencing of further policy adjustments, foreign-exchange stability and expectations, the domestic gold purchase programme’s role in building reserves and data integrity ahead of the next IMF review in April 2026.

On the external position, the Governor noted that gross international reserves have risen to more than GH¢13.8billion – equivalent to 5.7 months of import cover – supported by a current account surplus of 8.1 percent of GDP and strong gold prices. The cedi, he said, had been “remarkably stable” through 2025, reflecting improved confidence and a stronger external balance; though he cautioned that favourable global conditions may not be permanent.

Submissions from the previous meeting underscore how much importance the committee places on the exchange rate. Several members pointed to the introduction of a new FX operations framework, stronger reserve buffers and enforcement of market conduct rules as key anchors for expectations. The cedi’s appreciation by more than 30 percent year-to-date in 2025 helped dampen imported inflation and reinforced disinflation.

At the same time, members flagged risks from shifts in US Federal Reserve policy and geopolitical tensions, arguing for continued vigilance even as global financial conditions eased.

The domestic gold purchase programme is also under review. While members acknowledged its role in boosting reserves and confidence during the crisis phase, Dr. Asiama said the committee will need to assess its timing, sustainability and balance-sheet implications as the Bank transitions to a longer-term reserve accumulation strategy.

“The task is to calibrate policy to support growth while preserving credibility,” he said, adding that decisions at this stage are “not mechanical choices” but require judgment and balance.

Fiscal discipline remains a key assumption underpinning the easing path. MPC members in November pointed to a primary surplus of about 1.6 percent of GDP by September 2025, tight expenditure controls and improved coordination between fiscal and monetary policy. Any slippage, several warned, could complicate the inflation outlook.

In the interim, the balance of risks appears tilted toward further easing,…but at a slower pace. With inflation expectations anchored, reserves rising and growth holding up, the MPC is expected to trim rates again while using its communication to stress gradualism and pauses if conditions change.

One member noted in the November 2025 meetings that their objective is to align the policy rate more closely with market rates without reigniting pressures. This mindset is expected to likely dominate the committee’s decision this week on Wednesday, January 28.

The post MPC weighs policy path as FX stability, expectations steady                              appeared first on The Business & Financial Times.

Read Full Story