BoG to Chop Coverage Charge Additional to 19% – Life Pulse Daily

Introduction

In a significant move to address economic pressures, the Bank of Ghana (BoG) announced plans to reduce its coverage charge by 210 basis points, from 25% to 21.5%, effective September 2025. This policy shift, detailed in a report by IC Research, coincides with a historic decline in Ghana’s annual headline inflation to 9.4% year-on-year—its first entry into the BoG’s medium-term target band since August 2021. The disinflation trend, driven primarily by easing goods inflation (now at 11.2%) and moderated services inflation (now at 4.8%), underscores a potential turning point in Ghana’s monetary policy landscape.

Analysis

The Decline in Inflation: Key Drivers

The sharp reduction in headline inflation (down 210 basis points from August 2025) has been fueled by two core factors: foreign currency depreciation and its cascading impact on domestic costs. According to IC Research, this shift signals a correction in exchange rates, particularly the cedi, which has weakened against the U.S. dollar. A weaker cedi makes petroleum imports more expensive, directly increasing transportation and energy costs.

Impact on Goods vs. Services Inflation

While goods inflation—comprising 72.5% of the Consumer Price Index (CPI) basket—eased by 270 basis points to 11.2%, services inflation (27.5% of the basket) fell by just 60 basis points to 4.8%. This dichotomy highlights the uneven pace of deflation. Goods, heavily influenced by import costs, have seen greater relief than services, which are less sensitive to exchange rates but remain vulnerable to policy shifts.

IC Research’s Forecast vs. Reality

IC Research had anticipated an inflation decline of 190 basis points in September, but the actual drop of 210 basis points exceeded expectations. This outperformance suggests stronger-than-expected economic resilience, with the BoG’s policies likely playing a pivotal role in tempering prices.

Summary

The Bank of Ghana’s decision to reduce its coverage charge to 21.5% reflects confidence in sustained inflationary control. CPI has fallen below expectations, with goods and services inflation trending downward. IC Research attributes this to currency fluctuations and domestic market adjustments, forecasting further downward pressure on yields in the latter half of 2025.

Key Points

Practical Advice for Stakeholders

For Investors

The reduced coverage charge may signal lower borrowing costs, encouraging domestic investment. However, investors should remain cautious about currency volatility, as a weaker cedi could negate gains from lower interest rates.

For Businesses

Businesses reliant on imports should monitor exchange rate movements closely. Forward contracts and hedging strategies could mitigate risks posed by foreign currency oscillations.

For Policymakers

President Akufo-Addo’s administration must balance fiscal discipline with social welfare programs to sustain the inflation decline. Prioritizing local production subsidies could further ease goods inflation.

Points of Caution

Risk of Inflation Resurgence

While current trends are positive, explosive inflation could reemerge if currency depreciation accelerates. Sudden shifts in global commodity prices—particularly oil—could destabilize progress.

Impact on Debt Servicing

Lower coverage charges may reduce interest payments for debtors, but prolonged currency weakness could offset savings, complicating debt management for both public and private sectors.

Comparison

BoG’s 2025 Action vs. 2021–2024 Policies

Between 2021 and 2024, the BoG maintained coverage charges above 24%, aligning with a period of double-digit inflation averaging 12.5%. The current 21.5% rate marks a historic retreat, reflecting a paradigm shift toward data-driven monetary policy.

Global Context: Emerging Market Parallels

The BoG’s approach mirrors that of Brazil’s Central Bank, which slashed its Selic rate in mid-2025 after inflation dipped below 8%. Both decisions underscore a global trend: central banks recalibrating to pre-pandemic normalcy as inflationary shocks subside.

Legal Implications

The Bank of Ghana’s policy operates within its mandate under the Bank of Ghana Act, 2009 (Act 791). While the coverage charge reduction is a monetary tool, it does not conflict with existing legal frameworks. However, stakeholders should consult legal advisers to ensure compliance with the Act’s operational limits on policy adjustments.

Conclusion

The BoG’s coverage charge reduction and the associated inflation decline mark a milestone in Ghana’s economic recovery. By aligning with IC Research’s insights, this move may bolster domestic confidence. Nonetheless, vigilance remains critical to navigate currency volatility and ensure sustainable growth.

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