BoG overhauls monetary tools in bid to boost credit, improve transmission
By Joshua Worlasi AMLANU & Ebenezer Chike Adjei NJOKU
The central bank is revamping its monetary policy toolkit to improve transmission of its policy stance and stimulate private sector credit, Governor Dr. Johnson Pandit Asiama said on Wednesday at the 124th Monetary Policy Committee (MPC) meeting’s opening in Accra.
The Bank of Ghana (BoG) is moving away from its traditional reliance on the unremunerated Cash Reserve Ratio (CRR) and transitioning toward a more dynamic Open Market Operations (OMO) regime.
This shift includes deploying longer-tenor central bank instruments aimed at improving liquidity management and enhancing the effectiveness of policy signals across financial markets.
“This is intended to enhance policy transmission, improve liquidity management and allow greater room for credit expansion to the private sector,” Dr. Asiama told members of the MPC and invited guests.
The central bank recently introduced a 273-day sterilisation bill and launched a review of the cash reserve ratio framework to further strengthen monetary policy transmission.
The Bank of Ghana mopped up a total of GH¢79.8billion through its liquidity absorption operations between January and April 2025 – marking a 76.6 percent jump from the same period last year. The surge in tightening was most pronounced in April, when the central bank drained a record GH¢33.3billion from the financial system following it’s 123rd Monetary Policy Committee meetings in March 2025.
The data indicate a possible shift from a relatively conservative approach in 2024 to a more aggressive stance in 2025. The total mop-up in just four months of 2025 represents nearly 60 percent of the entire 2024 total of GH¢134billion, underscoring BoG’s intensified effort to control money supply and stabilise the macroeconomic environment.
While January 2025 saw a dip in mop-up compared to the previous year, February and March 2025 reversed that trend with auctions rising to GH¢15.5billion and GH¢21.6billion, respectively.
These are well above the 2024 averages for the same months and indicate heightened liquidity tightening measures.
The sharp uptick reflects a deliberate policy stance aimed at draining excess liquidity from the banking system and aligning short-term rates with tighter monetary conditions.
This shift comes at a pivotal time for Ghana’s economy, which is showing tentative signs of macroeconomic stabilisation following a prolonged period of volatility.
Inflation eased to 21.2 percent in April – down from earlier highs, driven in part by sustained monetary tightening, relative exchange rate stability and subdued non-food inflation. However, the figure remains above the Bank’s medium-term target band of 8 ± 2 percent.
In March, BoG raised its benchmark policy rate by 100 basis points to 28 percent in a bid to curb inflationary pressures. The decision appears to be yielding results. The local currency has rallied nearly 19 percent between April and May, which officials say has helped contain imported inflation and rebuild market confidence.
The cedi’s recent strength is attributed to a mix of prudent policy decisions, improving investor sentiment and favourable external conditions. Still, the Governor cautioned that this appreciation may not be permanent.
“We must carefully assess whether the current monetary policy stance remains adequate to drive disinflation without undermining the fragile growth momentum,” he said.
The Bank’s overhaul of its liquidity management strategy comes as authorities work to rebuild credibility and improve monetary policy’s effectiveness. Analysts have long noted that the CRR-based framework had limited capacity to influence market interest rates and often restricted credit flows to the private sector.
By pivoting to market-based instruments under OMO, the central bank aims to better align short-term rates with policy objectives and foster a more responsive financial system. The new tools are expected to provide commercial banks with greater flexibility and predictability in managing their liquidity positions, potentially unlocking more lending to households and businesses.
The meeting comes on the heels of other positive developments. Ghana has secured a Staff-Level Agreement with the International Monetary Fund on the fourth review of its Extended Credit Facility programme.
Credit rating agency S&P Global also upgraded Ghana’s sovereign rating from Selective Default to CCC+, citing improved fiscal and external indicators.
Despite these gains, risks remain. Dr. Asiama pointed to potential inflationary flare-ups stemming from food supply disruptions, global commodity volatility and geopolitical tensions that could weigh on capital flows and trade dynamics.
In a nod to transparency, the Governor emphasised the importance of clear and accessible post-meeting communication, saying the MPC’s statement must “anchor expectations and sustain public trust” in the central bank’s commitment to price stability.
The MPC is expected to announce its policy decision at end of the week, Friday, May 23, 2025.
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