At the 124th Monetary Policy Committee (MPC) meeting’s opening in Accra this week, Governor Dr. Johnson Pandit Asiama noted 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.
BoG recently introduced a 273-day sterilisation bill and launched a review of the cash reserve ratio framework to further strengthen monetary policy transmission.
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.
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.
Also, the cedi’s recent strength is attributed to a mix of prudent policy decisions, improving investor sentiment and favourable external conditions. However, the Governor cautioned that this appreciation may not be permanent.
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 MPC is expected to announce its policy decision today, Friday, May 23, 2025.
