INSIGHT BRIEF

130th MPC Update and Outlook: MPC holds policy rate at 14.0% due to visible risk amid low inflation rate

Summary: In our view, the MPC’s hold decision marks a shift from aggressive easing to a wait-and-see stance, as the Bank assesses whether recent price pressures will feed more strongly into domestic inflation. This is consistent with our Mar-2026 view that the 14.0% policy rate leaves limited room for further cuts, given rising crude oil risks and the need to preserve positive real returns. The Committee’s tone has clearly shifted from optimism to heightened vigilance, with Brent crude above USD100/bbl, inflation rising for the first time since Dec-2024, and expectations edging higher. More importantly, the transition to a uniform 20.0% CRR reflects a calibrated liquidity rebalancing measure rather than an outright tightening stance. While the policy removes the previous lending-linked incentive structure, it simultaneously injects liquidity into a large section of the banking industry, particularly banks previously subjected to the 25% CRR band.

Impact Assessment and Outlook

• We believe the market had duly priced-in the MPC’s decision to hold rates at 14%, following visible upside inflations pressures which saw headline rate increase to 3.4% in Apr-2026. Also, we expect this to be viewed as a near-term pause rather an ultimate end to the ongoing easing cycle, as inflation is still expected to settle within the Bank of Ghana’s target of 6% – 10%.
• However, by transitioning from the tiered Cash Reserve Requirement (CRR) framework to a uniform 20% reserve ratio on domestic currency deposits, the Bank of Ghana (BoG) effectively removes the previous incentive structure that rewarded stronger lending activity with lower reserve requirements. Our analysis of Q1-2026 financials across the 23 commercial and universal banks indicates that the industry collectively holds over GHS370bn in customer deposits. Based on prevailing loan-to-deposit ratio (LDR) thresholds under the current CRR regime, 18 banks currently fall within the 25% CRR band due to LDRs below 40%, while 4 banks maintain a 20% CRR with LDRs between 40% and 55%. Only one bank, with an LDR above 55%, currently benefits from the lower 15% CRR threshold. Consequently, the shift to a flat 20% CRR is expected to reduce reserve requirements for 18 banks from 25% to 20%, while increasing the requirement for one bank from 15% to 20%. Overall, we estimate that the policy adjustment could unlock at least GHS12bn in additional liquidity across the banking sector, strengthening cash positions and near-term balance sheet flexibility.
• We expect the new CCR of 20% to increase banking sector liquidity and improve the profitability profile of banks, while keeping credit growth at a more sustainable pace healthy to tackle the high NPL levels. Also, we believe improved liquidity levels could trigger another liquidity-induced decline in Treasury bill rates. On the other hand, we believe the new CRR directive may possess additional risk due to the estimated GHS12bn liquidity unlocked, which may spark some liquidity-induced upside pressures to near-term inflation outlook.