Ghana’s Monetary Indicators Point to Sustained Contraction as Inflation Fight Deepens

Ghana’s latest macroeconomic data paints a clear picture of a country deliberately pulling back monetary growth as it pushes forward with an aggressive fight against inflation. The Bank of Ghana’s May 2025 economic summary reveals a significant slowdown across nearly all key monetary indicators, from reserve money and broad money supply to private sector credit, signaling a sustained monetary tightening trend.

Between January and April 2025, Ghana’s monetary indicators show a broad and deliberate tightening across multiple fronts. Reserve Money growth dropped significantly from 74.2% to 38.0%, driven by steep reductions in both currency outside banks (from 33.4% to 20.0%) and commercial bank reserves (from 39.5% to 16.8%). Liquidity continued to shrink, with M1, typically made up of cash and demand deposits, declining from 41.4% to 34.5%. Broader monetary aggregates like M2 and M2+, which reflect savings and foreign currency deposits, also slowed from 35.0% and 35.3% to 31.8% and 26.7% respectively. Notably, foreign currency deposits saw the sharpest drop, falling from 36.2% to just 12.9%.

The contraction in money supply mirrors a broader fiscal and monetary tightening effort. The Net Domestic Assets of the Bank of Ghana, a key measure of domestic liquidity injections, flipped from a positive 10.0% in January to –10.9% by April, largely reflecting a pullback in central bank lending to government. Credit to the private sector also felt the squeeze, as nominal credit growth dipped from 29.4% to 19.9%, with real (inflation-adjusted) credit growth turning negative, from 4.8% to –1.1%.

Economist Dr. Adu Owusu Sarkodie of the University of Ghana confirmed that these trends are in line with government policy objectives. In an interview with The High Street Journal, he explained that the ongoing IMF-backed reforms are aimed at stabilizing the economy through tighter controls on liquidity and spending. “If you look at all the indicators, they are all on the decline… it’s not surprising,” he said. “We are already in the IMF programme, which is bridging fiscal consolidation and tight monetary policies. The new government has also come to continue with that.”

While he acknowledged that the current credit environment could constrain business activity, Dr. Sarkodie insisted that it is part of a necessary trade-off to bring inflation down. “It’s not too much of a good thing when it comes to businesses,” he admitted, “but businesses also suffer when inflation rises… so everything is in the essence of fighting inflation.”

Indeed, inflation has begun to slow, and external buffers are improving. The central bank’s Net Foreign Assets rose from 215.3% to 261.7% between January and April, likely reflecting better foreign exchange management and reserve accumulation. “The cedi appreciation has really helped,” Dr. Sarkodie noted, pointing to falling global commodity prices and disciplined policy on both fiscal and monetary fronts.

Looking ahead, he projected continued progress on inflation. “It’s very likely we’ll hit single-digit inflation by the close of the year,” he said, though he was quick to caution that high interest rates still pose challenges for private-sector financing. “As long as the lending rate is around 20%, I’m not sure it will serve as an incentive for anybody to borrow.”

Nonetheless, he maintained confidence in the overall direction of policy. “It’s just a matter of getting the mix right. You can’t have a quarter solution… all is in the right direction.”

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