Dr. Dennis Nsafoah, an Assistant Professor of Economics at Niagara University, has noted about how monetary policy is currently being conducted in Ghana, saying the declining interest rates do not correspond to expansionary liquidity.

However, he stated that though these actions may move in opposite directions on the surface, they are aligned at a deeper level as both are aimed at sustaining macroeconomic stability while supporting a gradual economic recovery.

In a paper, “Cutting Rates While Draining Liquidity: Is the Bank of Ghana Contradicting Itself—or Getting It Right?” Dr. Nsafoah, said over the past several months, the Bank of Ghana has been engaged in what appears to be a deliberate pattern of gradually reducing the policy rate while at the same time intensifying efforts to withdraw excess liquidity from the financial system.

“The most recent decision to lower the policy rate from 15.5% to 14% simply brings this pattern into sharper focus. It is not an isolated move, but part of an ongoing cycle of easing interest rates alongside continued sterilization. At the same time, the scale of liquidity management has been substantial. The Governor recently disclosed that the Bank incurred about GH₵17 billion loss in 2025 in absorbing excess liquidity from the system”.

He explained that lower interest rates are often associated with injecting liquidity, but that is not the case presently.

He pointed out that the evidence shows two developments occurring simultaneously. “Interest rates are falling, easing financial conditions, but liquidity is being withdrawn, tightening system-wide cash balances”.

Developments Reflect Monetary Policy Operation

Dr. Nsafoah argued that these developments are not contradictory, but rather they reflect monetary policy operating through two distinct channels at the same time.

He continued that the recent rate cut is aimed at easing financing conditions, supporting private sector activity and sustaining economic recovery.

He raised an important point about how the Bank of Ghana is managing a large overhang of excess liquidity in the system accumulated during the crisis period of 2022–2023.

“In Ghana’s context, this is critical because liquidity and exchange rate dynamics are closely linked. Excess cedi liquidity does not remain idle. It often flows into the foreign exchange market, increasing demand for dollars and putting pressure on the exchange rate. Exchange rate instability, in turn, feeds back into inflation”.

He stated that sterilization operations address this risk by absorbing surplus reserves, limiting speculative demand for foreign exchange and strengthening the stability of the cedi.

A Deliberate Policy Mix

He continued that what may appear contradictory is, in fact, careful policy calibration.

“The Bank of Ghana is lowering interest rates to support recovery, withdrawing excess liquidity to protect the exchange rate and reinforcing macroeconomic stability. This is not inconsistency. It is coordination”.

He concluded, saying, the Bank of Ghana is not working at cross purposes, but it is navigating a complex transition—from stabilization to recovery—using more than one instrument at a time. “Lowering the policy rate supports growth by easing the cost of credit. Withdrawing excess liquidity safeguards stability by limiting pressures on the exchange rate. These actions may move in opposite directions on the surface, but they are aligned at a deeper level: both are aimed at sustaining macroeconomic stability while supporting a gradual recovery”.