While Policy Rate Cut Seeks to Grow Economy, Success Will Depend on Tightening Inflationary Loopholes – Economist

Although economist, Dr. Paul Appiah Konadu has welcomed the Bank of Ghana’s significant 350 basis point policy rate cut, he fears that the move could throw inflation out of control without strict containment measures.

The economist at the Academic City University says the policy rate reduction is very steep; however, he understands that there is a need to expand or grow the economy after attaining some level of stability.

Hence, he welcomes the cut, which will eventually translate into a lower cost of credit for businesses to expand and grow the economy. According to him, the policy cut is well-timed to expand private sector credit, boost investment, and create jobs, particularly for Ghana’s youth.

However, he fears that without tighter fiscal discipline, the benefits could be undermined by runaway inflation that erodes economic stability. He is therefore cautioning that its success will depend on the government’s ability to seal fiscal loopholes and contain inflationary pressures.

The economist tells The High Street Journal that at a time when the government has also commenced implementation of the Big Push Programme, which is also a huge expenditure, a tight fiscal policy that does not undermine growth, but keeps inflation in check, is highly imperative.

“We can counter the risk factors by making sure that we continue with a tight fiscal policy regime. I know the big push has started, but as we implement the big push, whether it’s an expansionary fiscal policy, we should close the loopholes, cease avenues for corruption, and ensure that money does not drain out into the system. If that is done, the fiscal effect would counter the expansionary monetary effects in a way that would minimise the inflationary pressures that may come about,” he noted.

In addition, monetary authorities can deploy complementary measures such as strengthening the recently introduced 5% levy on forex withdrawals. Dr. Konadu believes proper enforcement of this policy will discourage unnecessary dollar withdrawals, reserving scarce forex for critical imports and external payments.

The economist also did not leave out the inflationary risk posed by the utility tariff hike demands proposed by the ECG and the Ghana Water Company. He warns that granting the power and water companies over 200% increase will deliver a severe inflationary shock.

Instead, he suggested a phased approach, approving only about 20% now, with gradual adjustments as the economy stabilizes.

“The proposed tariff size could also be delayed or could be made very minimal. We are told that the utility companies are asking for about 200% hikes. That is significant. That will have so much impact on inflation. We can grant them maybe 20% and as the economy eases and stabilises, we can raise it a bit further, not to implement a one-off hike or high increase in utility tariffs, as that has the potential of reinforcing inflationary pressures in the economy,” he cautioned.

He concluded that, “Altogether, it is a good move in the quest of the government to expand private sector credits and to enhance private sector investment, to open up the economy, to add value to raw material exports, and to create opportunities for employment, especially for the youth. But as we do that, we should also watch out for adverse inflation on inflation, which may also throw away the recent stability we have experienced with the downtrends in inflation.”

In his view, the policy rate cut is a necessary move to unlock funding for businesses, spur value addition in exports, and open employment opportunities. But he stressed that unless inflationary loopholes are sealed, the progress made in reducing inflation from 28% in December 2024 to 11.5% in August 2025 could be quickly undone.

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