Liquidity Falls Sharply in Late 2025 as Banks Face Cash Tightness
By Praisebell Rosemond Larbi
Ghana’s banking sector is closing out 2025 under increasingly tight liquidity conditions, with new monetary data pointing to shrinking bank reserves and one of the steepest slowdowns in money supply growth in recent years. While the squeeze aligns with the Bank of Ghana’s determined effort to suppress inflation, the pace and depth of tightening are raising broader questions about whether economic activity may be losing energy as the year draws to a close.
The clearest indicator of this shift is the sustained weakness in bank reserves. A key component of Reserve Money, reserves have remained negative through much of 2025, underscoring how thinly banks are operating compared to a year ago. After falling to –11.0% in June, reserves staged a short-lived recovery in July before sliding again to –3.0% in August, plunging sharply to –13.4% in September, and settling at –6.5% in October. This consistent pattern suggests that banks are functioning with significantly reduced liquidity buffers, limiting their ability to lend freely or take on additional risks.
Meanwhile, the broader measure of liquidity M2+, which captures cash, demand deposits, savings, and foreign currency deposits, has followed an equally striking downward trajectory. Liquidity growth, which stood at 31.7% in March, fell rapidly to 18.1% in May, 15.6% in June, recovered slightly to 16.6% in August, and then slid decisively to 8.2% in October. Such a dramatic deceleration signals a system in which cash circulation is tightening, business transactions are slowing, and the pace of financial activity is becoming increasingly subdued.
Even physical cash usage reflects this softer spending environment. Currency outside banks, which surged throughout 2024 as households grappled with inflation, has weakened markedly in 2025. Although October showed a marginal rise from 13.9% to 14.4%, the overall level remains well below last year’s peak and indicates that consumers and businesses continue to spend cautiously, favouring savings and essential expenditures over discretionary outlays.
For the central bank, this tightening posture is deliberate. By restricting liquidity, the BoG aims to anchor inflation firmly within its target band, slow excess demand, and maintain discipline within the financial system. The strategy has contributed to the notable decline in inflation recorded over the year, reinforcing the Bank’s belief that continued restraint is necessary to solidify macroeconomic gains.
However, the broader implications cannot be ignored. With bank reserves running negative, liquidity growth slowing sharply, and money supply indicators weakening across the board, there are emerging signs that the real economy may be losing momentum as 2025 tapers off. Investment appetite appears more subdued, household spending remains cautious, and credit expansion though improving, may be tempered by banks’ shrinking liquidity buffers.
For now, the Bank of Ghana appears comfortable keeping the monetary valves tight, prioritising price stability above rapid expansion. The question that will dominate early 2026 is whether liquidity conditions will ease soon enough to prevent a broader slowdown, or whether the economy may continue to operate in a more restrained, low-cash environment for a little longer.
