By Joshua Worlasi AMLANU ([email protected])
The central bank is tightening its grip on liquidity faster than it did a year ago, significantly scaling up its open market operations in the first four months of 2025 as inflation stays sticky around the 20 percent range amid fiscal pressures.
The Bank of Ghana mopped up a total GH¢79.8billion through its liquidity absorption operations between January and April 2025 – marking a 76.6 percent jump from GH¢ 45.1billion during 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 meeting in March 2025.
The aggressive absorption comes as BoG contends with enduring inflationary momentum and a need to sterilise excess liquidity carried over from an expansionary 2024 fiscal stance. This also signals a firm commitment to anchor inflation expectations and maintain macroeconomic stability under Ghana’s IMF-supported reform programme.
“The need for a policy reset has become more compelling to re-anchor inflation expectations,” the central bank’s Monetary Policy Committee said in its March statement.
BoG added that tight liquidity management, reinforced by complementary policy tools, is crucial to keeping disinflation on track.
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 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.
OMO instruments, once a routine tool of liquidity fine-tuning, have taken centre-stage in BoG’s tightening toolkit. 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.
Despite the liquidity tightening, short-term yields on Treasury bills have been on a decline. Last week’s auction saw the 91-day and 182-day bills ease 7bps each to 15.16 percent and 15.70 percent respectively, while the 364-day bill fell 15bps to 16.80 percent w/w.
Inflation softens, but core pressures persist
The central bank’s aggressive mop-up appears to be bearing early fruit. Headline inflation eased to 21.2 percent in April from 22.4 percent in March – well below the 41.2 percent rate recorded a year earlier. The deceleration was largely due to falling food prices, a steady cedi and favourable base effects. Still, month-on-month inflation edged up to 0.8 percent from 0.2 percent – signalling that price pressures remain embedded in the system.
Core inflation- which strips out volatile food and energy prices – remains elevated, underscoring BoG’s cautious tone.
“While headline inflation has declined marginally, it remains a concern,” the MPC warned, pointing to persistent second-round effects from supply shocks and fiscal policy spillovers.
With the disinflation path still fragile, BoG delivered a 100-basis point policy rate hike in March – its first increase in several months – bringing the benchmark rate to 28 percent. The move reinforced a hawkish pivot after a brief pause, as policymakers stressed that a tighter stance would help cement inflation expectations and discourage speculative pressures on the currency.
Cedi resurgence
Investor appetite, however, remains robust. Strong demand at auctions has been driven by improved macroeconomic sentiment and relatively stable exchange rate conditions.
The cedi’s resurgence, after depreciating 19.2 percent against the US dollar in 2024, has been a central factor in this turnaround. Since the start of 2025, the currency has appreciated by 10.5 percent – strengthening from GH¢14.71 to the dollar in December 2024 to GH¢13.31 by end of the first week in May 2025. The gains have also been felt against the British pound and euro, with respective year-to-date appreciations of 5.9 percent and 5.8 percent.
OMO tightening has also served to shore-up the cedi among other contributing factors such as the gold for reserve programme, which has over the past weeks been appreciating against all major currencies… especially the US dollar.
At close of the last week’s trading – Friday, May 16, 2025 – the cedi gained 2.26 percent w/w against the US dollar, 3.50 percent w/w against the British pound and 3.68 percent w/w against the euro. The exchange rates quoted at the mid-rates of GH¢13.30/$ (+16.73% YTD), GH¢17.15/£ (+12.24 percent YTD) and GH¢14.95/€ (+7.69 percent YTD).
The central bank’s strategy of absorbing surplus liquidity has helped stem speculative currency pressures while preserving external balance.
