Rising inflation narrows scope for further Monetary Policy easing
The possibility of further monetary policy easing is becoming increasingly limited after inflation accelerated for the second consecutive month in May, raising concerns that the Bank of Ghana (BoG) may be forced to prolong its pause on interest rate cuts despite inflation remaining below its medium-term target range.
According to the Ghana Statistical Service, headline inflation rose to 3.7 percent year-on-year in May, up from 3.4 percent in April. Month-on-month inflation also increased to 1.1 percent from 1.0 percent during the same period.
The latest figures represent the strongest monthly inflation performance since February 2025 and signal a potential re-emergence of underlying price pressures following a prolonged period of disinflation.
Food, energy and imported cost pressures were the main drivers of the increase. Food inflation climbed to 3.3 percent in May from 2.2 percent in April, supported by higher prices for vegetables, tubers and prepared meals. Housing, water and energy-related costs also remained elevated, recording an annual increase of 11.8 percent.
The inflation data present a more challenging policy environment for the Bank of Ghana ahead of its next Monetary Policy Committee (MPC) meeting scheduled for July.
At its May meeting, the MPC unanimously decided to maintain the policy rate at 14 percent, citing balanced risks to the inflation outlook despite the modest rise in inflation. The committee also tightened liquidity conditions by replacing the dynamic Cash Reserve Ratio framework with a uniform 20 percent reserve requirement, which took effect on June 4.
However, the latest inflation reading has intensified debate over whether there is still room for further monetary easing in the near term.
Analysts at Databank Research attributed the increase largely to cost-push factors, including higher fuel and utility prices, as well as a return of imported inflation after earlier declines. These developments contributed to broader price increases across the economy.
The firm expects inflation to rise further in June, projecting a range between 5.29 percent and 5.56 percent. It cited persistent energy costs, increasing food prices, recent depreciation of the cedi and ongoing supply chain pass-through effects as key factors behind the forecast.
Apakan Securities also observed that inflationary pressures are building despite the relatively low annual inflation rate. The brokerage linked the May increase partly to unfavourable base effects and the cedi’s 7.65 percent monthly depreciation, which heightened imported inflation pressures.
Food inflation was further exacerbated by supply-side challenges. Fresh tomato prices increased sharply during the lean harvest season, while trade disruptions from Burkina Faso contributed to shortages. As a result, monthly food inflation accelerated to 2 percent from 0.8 percent in April.
Although lower fuel prices helped contain inflation in some non-food categories during May, analysts believe inflation risks could intensify in June as transport fare increases, fuel price adjustments and elevated global commodity prices feed through to consumer prices.
These concerns echo views expressed by MPC members during their May deliberations. Several members warned that escalating geopolitical tensions in the Middle East, rising crude oil prices and disruptions to global supply chains could undermine Ghana’s recent inflation gains.
One MPC member cautioned that inflation could exceed 10 percent by the end of the year if oil prices remain elevated for a prolonged period, arguing that premature policy easing could eventually necessitate more aggressive tightening measures.
Other committee members pointed to rising inflation expectations among households and businesses, pending utility tariff adjustments and renewed foreign exchange demand pressures as reasons for maintaining a cautious monetary policy stance.
The inflation outlook is also closely linked to exchange-rate developments. Despite a strong external position, including a trade surplus exceeding US$5 billion and gross international reserves of US$14.4 billion by mid-May, the cedi has continued to face pressure.
By June 3, the central bank had reportedly injected more than US$5.7 billion into the foreign exchange market, yet the cedi had depreciated by about 11.5 percent. This contrasts with the same period in 2025, when approximately US$2.9 billion in interventions coincided with a sharp appreciation of the local currency.
Market analysts argue that foreign exchange interventions alone cannot guarantee exchange-rate stability without sustained confidence in macroeconomic fundamentals. A weaker cedi could further amplify imported inflation, particularly if global energy prices remain high.
As a result, financial markets are increasingly scaling back expectations of near-term interest rate cuts. MPC minutes show that while some policymakers still see scope for rate adjustments over the medium term, all members agreed that current risks justify maintaining the existing policy stance.
The committee repeatedly stressed the importance of anchoring inflation expectations and preserving policy credibility as Ghana transitions from its IMF-supported programme to a post-programme economic framework.
Attention at the July MPC meeting is therefore expected to focus not only on current inflation levels but also on emerging cost pressures, exchange-rate trends and developments in global energy markets that could affect the medium-term inflation outlook.
Should June inflation rise in line with market forecasts, the central bank may find that the policy space available earlier this year has narrowed significantly, potentially extending the pause in monetary easing and reinforcing its commitment to price stability.
The importance of maintaining tight monetary discipline was also highlighted during the 2026 IMF/World Bank Meetings, where policymakers noted that global geopolitical developments continue to constrain monetary policy decisions.
The International Monetary Fund stressed that preserving price stability remains the primary policy objective and urged central banks to act decisively to prevent inflation expectations from becoming unanchored.
According to the IMF, monetary authorities should remain prepared to respond firmly when prolonged supply shocks threaten medium- to long-term inflation stability, while retaining sufficient flexibility to accommodate temporary economic disruptions where appropriate.
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