BoG bets on Cedi Strength, Fiscal Consolidation to Curb Inflation

The Bank of Ghana (BoG) has expressed optimism that headline inflation will ease to its medium-term target range of 8 ± 2% by the end of 2025, signaling renewed confidence in the country’s macroeconomic outlook.

This projection, detailed in the Central Bank’s Inflation Risk Assessment and Outlook Report, reflects the combined effect of tight monetary policy, cedi appreciation, and ongoing fiscal consolidation efforts.

According to the BoG, Ghana’s disinflation drive remains well-anchored as the economy continues to experience improvements across key fundamentals. The Central Bank’s forecast suggests that the worst phase of post-pandemic inflationary pressures is now behind the economy, with the current trajectory indicating a return to long-term price stability.

Ghana’s inflation has been on a steady decline since the beginning of the year, with year-on-year inflation easing to 9.4% in September 2025, largely driven by a significant drop in food prices. This marks the ninth consecutive month of disinflation, a trend that the BoG says validates the effectiveness of its restrictive monetary stance.

The Bank noted that supply-side pressures especially in food and transport have subsided considerably, reducing their overall contribution to headline inflation. This cooling trend, combined with improved exchange rate stability and prudent fiscal measures, is expected to guide inflation further down toward the target band by December 2025.

Efforts

One of the strongest contributors to Ghana’s improved inflation outlook is the stability of the cedi. The BoG reported that the local currency’s performance against major trading currencies has remained resilient in recent months, supported by enhanced foreign reserve accumulation and robust external sector inflows.

The Central Bank explained that international reserves have exceeded the Extended Credit Facility (ECF)-supported program target, providing a strong buffer against external shocks and speculative pressures. This has contributed to reduced imported inflation and improved investor confidence.

“With exchange rate stability firmly in place, the pass-through effect on domestic prices has significantly reduced. This stability will remain a key anchor for the disinflation process as we move toward the end of 2025.”

Price Stability

In addition to monetary tightening, the BoG highlighted the government’s ongoing fiscal consolidation efforts as a crucial pillar supporting disinflation. Through expenditure rationalization, revenue enhancement measures, and debt restructuring, the fiscal outlook has improved substantially, helping reduce inflationary pressures from the demand side.

Fiscal consolidation, the BoG explained, complements its monetary policy efforts by minimizing the financing of budget deficits through monetary expansion, a major source of inflationary pressures in past years.

“The coordination between monetary and fiscal policies has become much stronger,” the report noted. “This synchronized approach is essential for sustaining low inflation while supporting economic recovery.”

Meanwhile, another factor influencing Ghana’s positive inflation outlook is the easing of global supply chain bottlenecks.

According to the BoG, supply-side pressures have reduced, leading to better food supply and lower transportation costs domestically. This has mitigated the cost-push elements that previously drove inflation higher.

However, the Central Bank cautioned that upside risks remain. Potential threats include global trade tensions, commodity price volatility, and domestic cost adjustments such as the 2.5% increase in utility tariffs and the new 1.0% energy levy on ex-pump prices. These could exert temporary upward pressure on consumer prices if not offset by policy stability and exchange rate resilience.

Nevertheless, the BoG remains confident that its proactive policy stance will keep inflationary risks under control. “The balance of risks is tilted to the downside,” the Bank stated, “and we expect any price shocks to be transient rather than structural.”

Tight Monetary

Despite the ongoing disinflation, the BoG has indicated that its tight monetary policy stance will remain in place for an extended period to consolidate gains. By maintaining a high real policy rate, the Bank seeks to anchor inflation expectations and prevent premature loosening that could reverse recent progress.

The monetary authorities are also focusing on strengthening communication with market participants to maintain policy credibility. Analysts believe this commitment is critical in ensuring that inflation expectations remain well-anchored around the target range.

That notwithstanding, the BoG’s forecast paints a cautiously optimistic picture of Ghana’s economic future. The convergence of exchange rate stability, fiscal discipline, steady oil prices, and reduced global inflationary pressures provides a conducive environment for inflation to settle within the 8 ± 2% range by the end of 2025.

If this projection materializes, it will mark one of Ghana’s most significant post-crisis macroeconomic recoveries in over a decade—restoring confidence in both the currency and monetary policy framework.