Ghana’s economy stands at a delicate crossroads. The Bank of Ghana recently convened an emergency Monetary Policy Committee (MPC) meeting in response to growing volatility in the foreign exchange market and renewed pressure on the cedi.
As inflation expectations resurface and the currency depreciates against the U.S. dollar, many analysts anticipate another interest rate hike. However, this moment presents an opportunity to ask a more fundamental question: How much can monetary policy really do on its own?
Interest rate hikes are often treated as the first line of defense when a currency weakens or inflation surges. By making borrowing more expensive, central banks aim to cool domestic demand and reduce inflationary pressures. Additionally, higher rates can attract foreign capital inflows, easing pressure on foreign exchange reserves.
But Ghana’s macroeconomic challenges stretch far beyond the reach of interest rate adjustments. The cedi’s persistent depreciation reflects structural weaknesses in the economy, including heavy import dependence, limited export diversification, low investor confidence, and an unsustainable public debt burden. These are not problems that can be solved simply by adjusting the policy rate.
The Bank of Ghana is in a difficult position. Raise rates too much, and the central bank risks stifling already weak growth, increasing the cost of domestic debt servicing, and reducing private sector credit. Fail to raise rates, and the country risks capital flight, further depreciation, and a worsening inflation outlook.
This is the monetary policy tightrope: the narrow space in which central banks must act decisively without overreaching. In Ghana’s case, the room for maneuver has narrowed in recent years, constrained by external shocks, fragile investor sentiment, and limited fiscal support.
Why rate hikes are not enough
There are three critical reasons why a central bank, particularly in a developing economy like Ghana’s, cannot rely solely on interest rates to restore macroeconomic stability:
A broader policy prescription
If interest rate hikes are not enough, what should be on the policy menu? Ghana’s economic recovery requires a coordinated, multi-pronged approach that aligns monetary, fiscal, and structural policies.
Lessons for the region
Ghana’s experience reflects a broader dilemma facing many African central banks. Across the continent, policymakers are grappling with inflation, debt, and currency instability amid tightening global financial conditions. While interest rate hikes may offer temporary relief, they are rarely sufficient on their own. Long-term economic stability requires deeper reforms and stronger coordination between monetary and fiscal authorities.
Conclusion
The emergency MPC meeting is a necessary step in confronting Ghana’s current economic challenges. However, interest rate adjustments are only one part of the solution. Without broader reforms to address the structural drivers of inflation and currency weakness, Ghana risks overburdening its central bank and prolonging economic instability.
True stabilization will come not just from tighter monetary policy, but from a shared commitment to rebuilding confidence, fostering productive investment, and restoring macroeconomic fundamentals.
>>>David Kwaku Owusu-Gyebi is a management consultant and EASA-licensed Aircraft Maintenance Engineer with expertise in strategy, operations, and economic development. His work focuses on leveraging aviation and infrastructure as catalysts for regional integration and inclusive economic growth in emerging markets. With an MBA from Duke University’s Fuqua School of Business, he combines deep technical expertise in aviation with strategic consulting experience to solve complex business challenges and unlock growth opportunities. He is passionate about trade facilitation, connectivity, and building systems that create sustainable impact for businesses and communities in Africa.
