I’ve monitored the central bank’s monetary operations and balance sheet developments over the past few years, and one of the most critical shifts underpinning Ghana’s current macroeconomic stability is the significant reduction in central bank financing of government deficits. This development is not merely technical; it lies at the heart of the restoration of price stability.

A central bank’s primary mandate is to maintain price stability. In Ghana’s case, the Bank of Ghana (BoG) operates under an inflation-targeting framework with a medium-term target of 8 per cent ±2 per cent. However, price stability becomes difficult to achieve when fiscal pressures dominate monetary policy.

Monetary financing occurs when the central bank directly funds government spending or deficits, often through advances or purchases of government securities. While such measures may be used in extraordinary circumstances, excessive or sustained reliance on them expands reserve money, increases system liquidity, and ultimately fuels inflation. When government deficits are monetised, money supply grows faster than productive output, creating upward pressure on prices.

Recent data indicate that this risk is now being prudently managed. There’s currently a decisive shift toward monetary discipline. Furthermore, legislative amendments to the Bank of Ghana Act in December 2025 strengthened statutory restrictions, prohibiting routine central bank purchases of government securities in the primary market and tightening limits on advances to government.

This institutional reinforcement of independence has helped re-anchor macroeconomic stability.

The link between reduced monetary financing and price stability is evident in the data. Inflation, which stood at 23.8 per cent in December 2024, declined sharply to approximately 3.8 per cent by early 2026. This disinflation was achieved not through administrative price controls but through disciplined liquidity management, credible monetary tightening, and the avoidance of renewed fiscal monetisation.

When central bank financing is curtailed, reserve money growth becomes more contained. Liquidity injections into the banking system are better calibrated. Aggregate demand pressures moderate. Inflation expectations begin to fall because markets believe that excess money creation will not recur. This credibility effect is powerful. Once expectations are anchored, inflation declines more sustainably and at lower economic cost.

The improvement in gross international reserves further reinforces this stability. Stronger external buffers reduce the need for disruptive foreign exchange interventions that can inject volatility into domestic liquidity conditions. A more stable exchange rate limits imported inflation, particularly in a country where fuel, food, and intermediate goods are sensitive to currency movements.

The Bank’s ability to gradually reduce the Monetary Policy Rate to 15.5 per cent by January 2026 without reigniting inflation demonstrates restored policy flexibility. Such easing would not be sustainable in an environment of fiscal dominance. The fact that inflation remained subdued even as rates declined underscores the effectiveness of disciplined monetary-fiscal coordination.

For the ordinary Ghanaian, the impact of this prudence is tangible. Lower inflation means food prices rise more slowly. Transport fares stabilise. School fees and rents become more predictable. Savings retain value. Businesses can plan production and pricing decisions with greater certainty. Investors are more willing to commit capital when inflation volatility is low.

Price stability also reduces the hidden tax imposed by inflation. When deficits are financed through money creation, the erosion of purchasing power disproportionately affects low-income households. By avoiding excessive monetary financing, the Bank protects real incomes and strengthens social stability.

Moreover, disciplined financing lowers sovereign risk premiums. When investors see that deficits are not being monetised, confidence improves. Government borrowing costs decline over time, easing pressure on the fiscal budget and freeing resources for development priorities.

The structural reforms underpinning this shift are as important as the numerical outcomes. Legal amendments, IMF programme safeguards, and improved transparency in reporting net claims on government have strengthened institutional credibility. These measures reduce the likelihood of future fiscal dominance and reinforce the Bank’s independence.

Evaluating the Bank of Ghana’s mandate today through the lens of monetary financing reveals a clear alignment with its core objective of safeguarding price stability. The significant reduction in direct deficit financing has contributed materially to declining inflation, exchange rate stabilisation, and improved investor confidence.

Sustaining this progress will require continued vigilance. Fiscal discipline must remain credible. Monetary policy must remain data-driven. Transparency in reporting must continue. But the evidence suggests that the prudence now exercised in managing monetary financing is a central pillar of Ghana’s current macroeconomic stability.

Ultimately, price stability is not accidental. It is the result of disciplined policy choices. By reducing central bank financing of government deficits and reinforcing its institutional independence, the Bank of Ghana has strengthened the foundation upon which inflation control rests, benefiting the economy as a whole and the ordinary Ghanaian in particular.